ENV 536: Environmental Economics and Policy (Lecture 2)

1
ENV 536 Environmental Economics and Policy
(Lecture 2)

• Assist.Prof. Sasitorn Suwannathep, Ph.d.
• School of Liberal Arts
• King Mongkuts University of Technology Thonburi

2
Link between economic activity and nature
Nature
Natural Resource Economics
Environmental Economics
(b)
(a)
Economy
3
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.

4
Relationship between economic activity and the
environment

• Provision of raw materials
• Receptacle of waste
• Provision of amenities

5
Circular Flow Model of Economic Activity

6
Materials Balance Model The Interdependence of
Economic Activity and Nature
7
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

8
Natural Environment
Recycled (R rp)
Residuals (Rp)
Discharged
Raw materials (M)
Producers
Goods
(Rdp)
(G)
Discharged
Residuals
Consumers
(Rc)
(Rdc)
Recycled (R rp)
9
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
  natures 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.

10
Environment Management

• Rdp Rdc M G Rp Rrp Rrc
• Three ways to reduce M
• Reduce G (Goods and Services ?)
• Reduce Rp (Production Residuals ?)
• Increase (Rrp Rrc) (Recycling ?)

11
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 gtgt The presence of matter or energy
  whose nature, location, or quantity has undesired
  effects on the environment.

12
Fundamental Concepts in Environmental Economics

• Environmental damage depends critically on
  identifying
• the causes of damage
• the sources of damage
• the scope of the damage.

13
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.

14
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.

15
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

16
Scope of Environmental Damage

• Regional Pollution
• Degradation that extends well beyond the
  polluting source.
• Ex. Acidic Deposition

17
source http//science.howstuffworks.com/ acid-rai
n.htm/printable http//maps.grida.no/go/graphic/g
raphicid/ 28536B4F-F03D-4D72-AF56-B6EF7211EB72
Acid Rain in Europe
18
Scope of Environmental Damage

• Global Pollution
• Environmental effects that are widespread with
  global implications.
• Ex. Global Warming, Ozone Depletion

19
Scope of Environmental Damage
Source www.met.sjsu.edu/cordero/education/educat
ion.htm
20
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.

21
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.

22
Rio de Janeiro Declaration on Environment and
Development
Source www.env.go.jp/en/wpaper/1993/eae2202190000
01.gif
23
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.

24
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.

25
Identifying Environmental Objectives

• Sustainable development
• Management of the earths 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.

26
Identifying Environmental Objectives

• Biodiversity
• The variety of distinct species, their genetic
  variability, and the variety of ecosystems they
  inhabit.

27
Source http//www.brazadv.com/images/biodiversity
.bmp
28
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.

29
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.

30
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.

31
Parties Involved in Environmental Policy Planning

• Private Sector
• Environmentalist
• Private Industry
• Scientists
• Economists
• Labour Unions
• Private Citizens

• Public Sector
• Executive Branch
• Congress
• Judiciary
• FDA
• Occupation Safety
• And Health Adm.
• Other Administrative
• Agencies
• State and Local Govt

Environmental Protection Agency
32
Environmental Policy Planning An Overview

• Policy Planning Process Tool
• Risk Analysis
• Risk Assessment
• Risk Management

33
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.

34
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.

35
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.

36
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.

37
Environmental Policy Planning An Overview

• Risk Analysis
• Risk Management
• Governments 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.

38
http//www.ijc.org/rel/boards/wqb/psfig3.gif
39
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.

40
The End

• Next lecture will be
• on Dec 7, 2008 at Room LNG 702
• School of Liberal Arts Building