ENV 536: Environmental Economics and Policy

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ENV 536 Environmental Economics and Policy
Introduction to Environmental Economics (Lecture
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• Assist.Prof. Sasitorn Suwannathep, Ph.d.
• School of Liberal Arts
• King Mongkuts University of Technology Thonburi

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The Origins of Environmental Economics

• Lies in the 1960s, the first wave of modern
  popular green thinking and policy perceptions
  within developed countries.
• Fundamental ideas provided the frameworks for
  environmental economics can be traced to
  eighteenth century.

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The Economy as an Open system

• Our economic system is underpinned by and cannot
  operate without the support of ecological
  systems.
• In order to provide goods and services to human,
  the economy must extract resources from the
  environment, processes to end-products and
  disposes of wastes to the environment.

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Ecological limits on the Economy

• Economic activity is limited by the capacities
  of natural environments.
• The works of famous scholars focused on the
  limits are
• Malthus (1798)
• Ricardo (1817)
• Marx (1867)

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Ecological limits on the Economy

• Malthus worried about absolute limits.
• Population growth tends to outgrow the means of
  subsistence (foods) and a state of misery will be
  the inevitable end result.

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Global population continues to rise
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Arguments on Malthus

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Ecological limits on the Economy

• Ricardo viewed the limits in a relative term.
• Limits are set by rising costs as the highest
  grade resources, which are exploited first,
  become exhausted and have to be substituted for
  by successively lower grade resources.

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Ecological limits on the Economy

• Marx perceived that the economic growth might be
  limited because of social and political unrest
  within the national economy.

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What is Economics?

• Economics is the study of how and why individuals
  and groups make decisions about the use and
  distribution of valuable human and nonhuman
  resources.
• Economics is divided into
• Microeconomics the study of the behavior of
  individuals and small groups
• Macroeconomics the study of the economic
  performance of economies as a whole.

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What is Environmental Economics?

• Environmental economics draw from both sides,
  much more from microeconomics.
• Environmental economics focuses on
• how and why people make decisions that have
  consequences for natural environment
• how economic institutions and policies can be
  changed to bring these environmental impacts back
  to balance.

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What is Environmental Economics?

• The application of the principles of economics to
  study of how environmental resources are managed.
• Analytical subjects not only to describe the
  state of the environment and the change in it,
  but also to understand why this conditions exist
  and how we might bring about improvement the
  environmental quality.

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What is Environmental Economics?

• Environmental economics applied field like
  labour economics, health economics, development
  economics, experimental economics, financial
  economics, monetary economics etc.
• Environmental economics involves
• adapting concepts developed in other branches of
  economics and applying them to environmental
  problems.

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Why study Environmental Economics?

• In general, prices reflect the relative scarcity
  of goods.
• In environmental economics, markets and prices do
  not exist (or market failure).
• There is no market for environmental resources
• Government intervention is need to correct such
  failures (Conventional Approach)

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Aspects of Environmental/ Natural Resources

• No market
• Dynamics
• Irreversibility

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Aspects of Environmental/ Natural Resources

• No market (Market failure)
• We usually rely on markets to match producer
  costs with consumer demands so as to obtain the
  optimal amount of consumer goods.
• With environmental goods, more difficult.
• Why? markets may not work.

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Aspects of Environmental/ Natural Resources

• Dynamic
• The decision to use natural resources today does
  affect what will be available tomorrow
• Irreversibility
• Damage to natural resources has long term
  effects. If we clear the forest, the future
  generation will unable to know about the
  biodiversity.

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The Importance of Incentives

• Economists study how incentives affect individual
  behavior.
• Since there is no market for environmental goods,
  then people try to make more benefits from these
  goods. (maximize profits or utilities)
• Pollution is a result of the profit-motive.
• Without taking environmental costs into account,
  there will be over production, then excess
  pollution will result.

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The Design of Environmental Policy

• Environmental economics is essential for
  environmental policy making.
• It is important to know how alternative policy
  measures up in terms of cost-effectiveness, and
  in terms of efficiency.
• Effective decision making requires adequate
  information about consequences of the decisions.

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Analysis Tools in Environmental Policy Questions

• Benefit-cost analysis
• Limitation of B/C analysis.
• Not all costs and benefits are easily
• Identified or defined
• Quantified
• Difficult to agree on all costs and benefits
• Non-market valuation techniques

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International Environmental Issues

• The global environment
• International environmental agreements