Transcript Chapter 20

Sustainable Development
Ch. 20
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China: an example of
economic growth
It is the third largest in the world after the EU and US
with a nominal GDP of US$8.22 trillion (2012) when
measured in exchange-rate terms.
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China has been the fastest-growing major nation for
the past quarter of a century with an average annual
GDP growth rate about 9.3 (2008-2011).
China's per capita income has grown at an average
annual rate of more than 8% over the last three
decades drastically reducing poverty.
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This is a great economic growth model
But what are the costs?
This rapid growth has been accompanied by rising
income inequalities.
The country's per capita income is classified in the
lower middle category by world standards, at about
$3,180 (nominal, 104th of 178 countries/economies),
and $5,943 (PPP, 97th of 178 countries/economies)
in 2008, according to the IMF.
What is more important? a Long-run view!
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China's dazzling economic growth, but when the
negative effects of China's pollution are factored in,
the growth rate is less impressive.
The Chinese government has calculated that the
effects of pollution wiped out $67 billion, or 3 percent
of the nation's GDP, in 2004.
The World Bank calculates that pollution costs China
about 5.8 percent of GDP every year.
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A man collects dead fish in Donghu lake, where
officials say an estimated 30,000kg of fish have
been killed by a combination of pollution and hot
weather
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A resident takes water from the polluted Yellow river
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In China, packaging and containers has been associated with a
problem called "White Pollution”. The lack of environmental
awareness amongst the citizenry contribute to the adverse
impact caused by plastic materials; they throw away used foam
boxes everywhere, unaware of the effect on their city’s image
and environment.
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In some situations there is a trade-off between
economic growth and environmental quality, with
expansion of some economic activities coming at the
cost of depleted resources or increased pollution
In other situations, the 2 are complements: with
prudent resource management a critical component
of sustained growth
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What is the relationship between economic
development, natural resource management, and
environmental quality?
Is there a trade-off in which economic growth can
proceed only at the cost of continued environmental
degradation?
Are environmental quality and growth sometimes
complementary?
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A country’s environment is a valuable natural
resource.
These resources can be critical inputs to economic
activity, job creation, and growth.
Prudent management of fisheries can help provide
sustainable source of food for fisheries and their
families or support large scale commercial fishing
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To some extent, all economic activity uses the
environment as a dump for waste products.
Environment damage can have substantial
detrimental effects on health and welfare.
Contaminated water (water pollution) and resulting
diseases kill about 2 million children and causes
about 300,000 to 700,000 premature deaths a year.
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Many people suppose that rapid growth only comes with
environmental degradation, and an improved environment
can come only at the cost of reduced growth and
development.
In some cases, this is true!
Rapid economic growth today may create pollution that
reduces welfare and incurs cleanup costs in the future
If rapid growth today is possible only through depleting
resource (forest: timber industry), growth may not be
sustainable and may come at a very high cost.
Efforts to reduce pollution or better manage the environment
can be costly, and hard choices need to be made weighing the
costs and benefits.
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In other cases, there in no trade-off!
development and environmental goals are
complementary, and reducing environmental
degradation can help lower production costs and
directly improve economic output and welfare.
Ex. Reduced air and water pollution should support
tourism, fisheries development, and agricultural
production.
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These issues take on greater meaning when going
beyond national borders to consider the entire
planet.
Running out of minerals (fuels) before we can
develop technologies for renewable sources of
energy
Heating earth atmosphere, emissions, changing
world climate...
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These issues take on greater meaning when going
beyond national borders to consider the entire
planet.
Running out of minerals (fuels) before we can
develop technologies for renewable sources of
energy
Heating earth atmosphere, emissions, changing
world climate...
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Market Failures
Environmental degradation is often a result of market
failures: in which markets prices deviate from scarcity
values and individuals and firms make decisions that
maximize their own profits but cause losses for others
and society as a whole
Within a single country, correcting those failures and
establishing properly working, efficient markets can be
among the most powerful and effective mechanisms to
promote efficient resource use, reduce environment
degradation, and generate sustainable development.
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Environmental degradation often occurs because
market participants do not take into account the full
costs of their actions on the environment.
Ex: prices of goods produced in a factory may not
include the costs to society of the air pollution
generated by that factory.
Government policies and interventions aimed at
incorporating these costs into market market
decisions help improve environmental outcomes,
make markets work better, and bring broader
benefits to society.
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Market failures affecting resources are externalities:
costs borne by the population at large but not by
individual producers and benefits that occur to
society but cannot be captured by producers.
The most important externalities are those caused by
the deletion or degrading of natural resources,
including the environment
If resources are depleted at rates faster than they
can be replenished or substituted by human made
capital, development will be unsustainable
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Why Markets Fail to Allocate
Natural Resources Efficiently?
THE COMMONS:
A dilemma in which multiple individuals acting
independently in their own self-interest can ultimately
destroy a shared limited resource even when it is
clear that it is not in anyone's long term interest for
this to happen
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The commons dilemma stands as a model for a
great variety of resource problems in society today,
such as water, land, fish, and non-renewable energy
sources like oil and coal.
When fish consumption exceeds its reproductive
capacity, or oil supplies are exhausted, then we face
a tragedy of the commons.
When we include the environment as a common
resource, then much private activity generates
external costs and market failure becomes a very
general phenomenon
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Polluters impose costs on
others. If these external costs
were reflected in firms costs,
SMC would prevail.
EXTERNALITIES
Price
SMC
S=PMC
P2
P1
q2
Quantity
q1
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EXTERNALITIES
The market price would be
P2 and output Q2
Price
SMC
S=PMC
P2
P1
q2
Quantity
q1
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Because the firms do not
bear those costs, their PMC
is Lower, So more Q1 of the
polluting product is
produced and consumed
EXTERNALITIES
Price
SMC
S=PMC
P2
P1
q2
Quantity
q1
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