Environmental Science 112FALL SEMESTER 2018INSTRUCTOR: DR. Adrienne [email protected] 5: Economics, Policy and Sustainable DevelopmentEconomics and the Environment● An economy is a social system that converts resources into goods and services○ Goods are material commodities○ Services include work done for others● Economics is the study of how people use potentially scarce resources to provide goods and services that are in demandsEconomies rely on goods and services from the environment● Economies receive inputs from the environment process them, and discharge outputs back into the environment○ Traditional economics may overlook these interactions● Natural Resources, or ecosystem goods, include fresh water, trees that provide timber, and the energy from the sun , wind, water, and fossil fuels● Ecological services include air and water purification, soil formation, climate regulation, pollination, and waste recyclingEconomic theory moved from “invisible hand” to supply and demand● Adam Smith argued that self-interested economic behavior can benefit society, as long as it is controlled○ Classical economics…..○ Neoclassical economics describes a conflict between buyers (who want a low price) and sellers (who want a high price)■ Result of supply (the amount of product offered for sale at a given 1price) and demand (the amount of product people will buy at that price)■ The market moves toward an equilibrium point, where supply equals demand● A cost-benefit analysis compares estimated cost of a proposed action with its benefits○ choice= the greatest excess of benefits over● Issue = not all costs and benefits are easily identified○ What is the monetary value of the ecological costs of clearing a forest● Monetary benefits are usually more easily quantified than environmental costs, so decisions are often biased toward economic developmentNeoclassical Economics has environmental consequences● Neoclassical economics assumes that natural and human resources are either infinite or can be substituted easily when used up○ Fossil fuels can be depleted○ Soil, fish stocks, and forest products can be overexploited○ Inexhaustible resources, like water, can be contaminated● 2nd assumption only takes into account internal costs, or those directly borne by individuals taking part in an economic exchanges● External costs affect others besides the buyer and seller.○ Examples include: Health impacts, Depletion of resources, aesthetic damage, financial loss● 3rd assumption is discounting, where future effects are granted less weight than ones in the present○ Many environmental problems unfold gradually, so impact of decisions madeto benefit the present generation are often left for the next generation to deal with● 4th assumption is that an increase in production and consumption is goods and 2services, called economic growth, is essential in maintaining social order○ Endless growth with limited resources is not sustainableHow sustainable is economic growth● Issues with the assumptions of classical economics have led to the field of environmental economics, where the goal is to attain sustainability within our economic systems● Ecological economics take the position that econo ies should attain a stability, much like natural populations do in the face of environmental limitations● Steady-state economics would mirror ecological systems by neither growing nor shrinking but by establishing a natural equilibriumWE can assign monetary value to ecosystem goods and services● Ecosystem services have nonmarket values, meaning they are not part of the price of a good or service○ Aesthetic, option, scientific, and educational values are still real even though we do not pay for them● Accounting for nonmarket values like the improves economic and environmental decisions○ Aesthetic value, cultural values, option value, educational valueWE can measure progress with full cost accounting● The economy of each nation has traditionally been assessed used the Gross Domestic Product (GDP), the total monetary value of goods and services produced in a year○ Does not account for non market values○ Includes both desirable and undesirable economic activity● One alternative indicator developed by environmental economists is the genuine progress indication○ Adds in unpaid positive contribution such as parenting and volunteering○ Negative impacts such as crime and pollution, are subtracted3● GPI is an example of full cost accounting because it includes all costs and benefits● This discrepancy suggests the Americans are spending more money without and improvement in their quality of lifeMarkets can fail● Market failure occurs when positive outside forces and external costs are not considered● Government intervention is intended to counteract market failure○ Taxes on harmful activities like smoking○ Laws and regulations to prevent long term damaging behaviors○ Economic incentives to promote conservation and sustainabilityEnvironmental Policy: An Overview● A policy is a formal set of plans and principles intended to solve problems and ais decision making○ Public policy includes laws, regulations, orders, incentives, and practices enacted by the various levels of government○ Environmental policy specifically address our interactions with the environmentScience, Ethics, Economy Making and effective policy decision when improving economy. Environmental policy addresses issues of fairness and resource use Garnett Hardin (1968) Scenario where a public pasture would be over exploited as individuals acting in their own best interest increase their grazing animals.● Resource eventually become depleted, causing posture food production to collapse● Also called the tragedy of the commons and applies to many public resources, such as forests, fisheries, clan air, clean water and global climate. 4Illustrates importance of management and restriction of the use of a resource to maintain it● Effective policy requires input from science, ethics, and economicsEnvironmental policy address issues of fairness and source use● Policy also helps to prevent the predicament of a free rider in private, voluntary efforts● For example, if a river is suffering from water pollution from 10 different factories, the problem could be solved by each factory voluntarily reducing its own pollutionVarious factors can obstruct environmental