ENV 536: Environmental Economics and Policy (Lecture 2)

sasitorn suwannathep 1

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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Economy(a) (b)

Link between economic activity and nature

Nature Environmental Economics

NaturalResourceEconomics

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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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Relationship between economic activity and the environmentProvision of raw materialsReceptacle of wasteProvision of amenities

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Circular Flow Model of Economic Activity

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Materials Balance Model: The Interdependence of Economic Activity and Nature

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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 d

c

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Producers

Consumers

Raw materials (M)Goods

Residuals (Rp)

(G)

Discharged

(Rdp)

Discharged

(Rdc)

Residuals

(Rc)

Recycled (R rp)

Recycled (R rp)

Natural Environment

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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 ManagementRd

p + Rdc = M = G + Rp – Rr

p – Rrc

Three ways to reduce M Reduce G (Goods and Services ￬ )

Reduce Rp (Production Residuals ￬ )

Increase (Rrp + Rr

c) (Recycling ￪ )

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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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Acid Rain in Europe

source: http://science.howstuffworks.com/acid-rain.htm/printable

http://maps.grida.no/go/graphic/graphicid/

28536B4F-F03D-4D72-AF56-B6EF7211EB72

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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

Source: www.met.sjsu.edu/~cordero/education/education.htm

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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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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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Rio de Janeiro Declaration on Environment and Development

Source: www.env.go.jp/en/wpaper/1993/eae220219000001.gif

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Identifying 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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Identifying Environmental Objectives

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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Identifying Environmental Objectives

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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Identifying Environmental Objectives

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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Identifying Environmental Objectives

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

Environmental Protection

Agency

Public Sector

• Executive Branch

•Congress

•Judiciary

•FDA

•Occupation Safety And Health Adm.

•Other AdministrativeAgencies

•State and Local Gov’t

Private Sector

•Environmentalist

•Private Industry

•Scientists

•Economists

•Labour Unions

•Private Citizens

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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 pollution-

generating 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 preventionA long-term strategy aimed at reducing the amount or toxicity of residuals released to nature.

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Next lecture will be on Dec 7, 2008 at Room LNG 702

School of Liberal Arts Building