Transcript Ch 23 Economics S`11 edited

Chapter 23
Economics, Environment, and
Sustainability
New Economic and
Environmental Vision
Ecological Economists
- Redesign economic and political systems
Environmental Economists
- Reform of current economic systems
rather than redesign
Sustainability revolution=economic revolution
ECONOMIC SYSTEMS
• An economic system produces and
distributes goods and services by using
natural, human, and manufactured
resources.
Economic Systems Are
Supported by Three Types of
Resources
• Natural Resources-goods and services
produced by the earth’s natural processes
• Human Resources-people’s physical and
mental talents that provide labor, innovation,
culture, and organization
• Manufactured Resources-machinery,
equipment, and factories, which are made
from natural resources with the help of
human resources
Three Types of Resources
Are Used to Produce Goods
and Services
Market Economic Systems
• Pure Free-market economic system
– Theoretical model in which buyers and
sellers interact in markets without any gov’t
interference.
– Pure free markets do not exist in today’s
capitalist market system
• Companies lobby for gov’t subsidies, tax
breaks, or regulations to get advantages
• $ 1 trillion in gov’t subsidies given out each
year.
Supply and Demand
Supply-the amount of a good that is available
Demand-The amount of a good that people
want
Price-market cost of a good or service
Profit or loss-the difference between the cost
of producing something and the price
buyers are willing to pay
Government Intervention in
Market Economic Systems
• Governments intervene in market
systems to help provide economic
stability, national security, and
public services such as education,
crime protection, and
environmental protection.
Problems with Capitalist
market system
• Do not make widespread use of indicators
that monitor environmental health and quality
• Do not include the harmful environmental
costs of goods in their market prices.
• Do not consider long-term harmful
environmental consequences because the
focus is on short term profits
Environmentally Sustainable
Economic Development:
Copying Nature
• Models of ecological economists are
based on these assumptions:
– Resources are limited.
– Encourage environmentally beneficial and
sustainable forms of development.
– The harmful environmental and health
effects of producing goods and services
should be included in market prices.
We Can Estimate Optimum Levels of
Pollution Control and Resource Use
• Relationship between
– Marginal benefit of resource use
– Marginal cost of resource production
• Optimum level of resource use
• Optimum level for pollution cleanup
Marginal Cost/Benefit
• Marginal Cost-the additional cost of
producing one more unit of a good or
service.
-The difference between a seller’s
starting price and the new price
Marginal Benefit-The increase in benefit
that it provides to the buyer when one
more unit of a good or service is
produced.
– Mitigation cost: how much it takes to
offset any environmental damage.
– Willingness to pay: determine how much
people are willing to pay to keep the
environment in tact (e.g. protect an
endangered species).
Optimum Pollution Control
Cost-benefit Analysis
• Making economic decisions about how to
control pollution and manage resources
• Estimate optimum level of pollution cleanup
or resource use
• Estimating costs for
– Pollution control regulation
– Building a dam on a river
– Preserving an area of forest
Economic Indicators
• GDP and per capita GDP
– Provide a standardized and useful method for measuring
and comparing the economic outputs of nations
– Doesn’t determine between the good that are
environmentally or socially beneficial or harmful
– New ideas
• Add to the GDP items concerning environmental quality
• Subtract from GDP cost that lead to lower quality of life/
degrade natural resources
GPI
• GPI- Genuine Progress Indicator
– Estimated values of beneficial transactions that
meet basic needs, but in which no money changes
hands, are added to the GDP.
• Unpaid volunteer work, health care, childcare,
housework
• GPI= GDP+ benefits not included in
transactions - harmful environmental and social
costs
Monitoring Environmental
Progress: Comparing Per Capita
GDP and GPI
Estimating Future Value of a
Resource
• 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 not include most of the environmental,
health, and other harmful costs associated
with its production and use. (Full Cost
Pricing)
Full Cost Pricing
• Environmentally honest market system
– Way to deal with the harmful costs of
goods and services
– External Costs are health and
environmental costs, not usually included
in market price
– Harmful indirect or external costs of goods
or services in their market prices to reflect
as close as possible to Full costs
• Full Cost= internal costs+ external costs
Full-Cost Pricing
• Marketed price of a good or service
includes the cost to make the good or
produce the service, plus the harmful
indirect cost, including health and
environmental effects
• Encourages producers to become more
resource efficient and produce less
pollution
Objections
• Producers would have to charge more
for their goods. They might go out of
business
• It is hard to put a price tag on
environmental and health costs
Product Eco-labeling
• Encouragement to develop green
product
• US Green Seal
– Easy for consumers to buy these products
Subsidies
• Phase out environmentally harmful subsidies
and tax breaks. They create huge economic
incentive for unsustainable resource
depletion
–
–
–
–
Extracting minerals
Cutting timber on public lands
Supplying fertilizers
Low cost water for farmers
Subsidies
• Typical American taxpayer pays at least
$2500 a year to provide environmentally
harmful subsidies and then pays $1000
due to environmental degradation,
pollution cleanup, and higher health and
insurance costs
Subsidy Shifting
• Phase in environmentally beneficial subsidies
and tax breaks
– High subsidies for
•
•
•
•
•
•
Energy conservations
Renewable energy
Sustainable forestry
Sustainable agriculture
Soil and water conservation
Etc.
Subsidy Shifting in Other
Countries
• Japan, France, and Belgium have
phased out all coal subsidies
• Germany plans to do so by 2018
• China has cut coal subsidies by nearly
73%
• New Zealand has phased out virtually
all agricultural subsidies
Objection
• Organizations currently receiving
subsidies lobby to resist change
Taxes
• Encourages- what we want less of
– Pollution, resources waste
• Discourages- what we want more of
– jobs, income
Green Taxes
• Tax amount of pollution and hazardous
waste produced.
• Tax use of fossil fuels, nitrogen fertilizer,
timber, minerals etc.
Tax Shifting
• Reduce tax on profits and income =
Good
• Tax pollution, overuse of resources =
Bad
• In Europe, green tax = 7% of total tax
revenue
• In Denmark, tax on a new car is more
than price of the car
3 requirements for Green
Taxes
1. 15 to 20 years to phase in
2. mechanism to ensure that the revenues
from such taxes improve environmental
quality/reduce taxes on labor, income
and wealth
3. Poor and lower class need an
economic safety net- reduce regressive
nature of taxes
Selling Services
• Material flow economy -> service flow
economy
– Customers can ecolease or rent services that
good provide
– Document services- leasing a photocopier
(XEROX)
– Chemical services- leasing organic solvents
– Mobility services- lease a vehicle
Worldwide Poverty
• Poverty: the inability to meet one’s
basic economic needs
• 1.1 billion people struggle to
survive on less than $1 a day
• About half the world’s population
live on a daily income of $1-2
Solutions: Reducing Poverty
• Cancel debts of poorest countries
• Mount global effort to combat
malnutrition and infectious diseases
• Provide universal primary school
education and eradicate illiteracy
• Stabilize population growth in
developing countries
• Microloans
Microloans
• Grameen Bank in Bangladesh
• Lending $50-$500 at a time instead of
large amounts
• Solidarity groups of 5
• Less than 3% of payments are late
• About half of those borrowing money
have escaped poverty within 5 years
Microloans
• Muhammad Yunus won Nobel
Peace Prize in 2006
• Citibank and TIAA-Cref have each
committed $100 million to
microloans