ENV 536: Environmental Economics and Policy (Lecture 2)

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 sasitorn suwannathep

Link between economic activity and nature Natural Resource Economics Nature Environmental Economics (b) (a) Economy sasitorn suwannathep

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. sasitorn suwannathep

Economics and the Environment • Economic theory explains what we observe in reality, including environmental problems • Recognize the link between economic activity and the environment using models • Circular Flow Model • Materials Balance Model sasitorn suwannathep

Circular Flow Model • Shows the real and monetary flows of economic activity through the output and factor markets • Forms the basis for modeling the relationship between economic activity and the environment • But does not explicitly show the linkage between economic activity and the environment sasitorn suwannathep

Circular Flow Model of Economic Activity sasitorn suwannathep

Materials Balance Model • Places the circular flow within a larger schematic to show links between economic activity and the natural environment via two sets of flows • Flow of resources from the environment to the economy • The focus of Natural Resource Economics • Flow of residuals from the economy to the environment • The focus of Environmental Economics sasitorn suwannathep

Materials Balance Model (Con’t) • Residuals are pollution remaining in the environment after some process has occurred • Residuals can be delayed, but not prevented, through recovery,recycling, andreuse • Shown as inner flows in the model sasitorn suwannathep

Materials Balance Model: The Interdependence of Economic Activity and Nature sasitorn suwannathep

Science and the Materials Balance Model • The flow of resources and residuals are balanced according to laws of science • First Law of Thermodynamics • Matter and energy can neither be created nor destroyed • Second Law of Thermodynamics • Nature’s capacity to convert matter and energy is not without bound sasitorn suwannathep

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 modelin 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 sasitorn suwannathep

Natural Environment Recycled (R rp) Raw materials (M) Residuals (Rp) Discharged Producers (Rdp) Goods (G) Discharged Residuals Consumers (Rc) (Rdc) Recycled (R rp) sasitorn suwannathep

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. sasitorn suwannathep

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 ￪) sasitorn suwannathep

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. sasitorn suwannathep

Fundamental Concepts in Environmental Economics • Environmental damage depends critically on identifying: • the causes of damage • the sources of damage • the scope of the damage. sasitorn suwannathep

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. sasitorn suwannathep

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. sasitorn suwannathep

Scope of Environmental Damage • Environmental pollution is often classified according to the relative size of its geographic impact as local, regional, or global. • LocalPollution • Environmental damage that does not extend far from the polluting source. • Ex. Urban Smog, Solid Waste Pollution sasitorn suwannathep

Scope of Environmental Damage • Regional Pollution • Degradation that extends well beyond the polluting source. • Ex. Acidic Deposition sasitorn suwannathep

source: http://science.howstuffworks.com/ acid-rain.htm/printable http://maps.grida.no/go/graphic/graphicid/ 28536B4F-F03D-4D72-AF56-B6EF7211EB72 Acid Rain in Europe sasitorn suwannathep

Scope of Environmental Damage • Global Pollution • Environmental effects that are widespread with global implications. • Ex. Global Warming, Ozone Depletion sasitorn suwannathep

Scope of Environmental Damage sasitorn suwannathep Source: www.met.sjsu.edu/~cordero/education/education.htm

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. sasitorn suwannathep

Environmental Objectives(Con’t) • 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. sasitorn suwannathep

Environmental Objectives(Con’t) • 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. sasitorn suwannathep

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. sasitorn suwannathep

Environmental Objectives(Con’t) • 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. sasitorn suwannathep

Rio de Janeiro Declaration on Environment and Development sasitorn suwannathep Source: www.env.go.jp/en/wpaper/1993/eae220219000001.gif

Environmental Objectives(Con’t) • Biodiversity • The variety of distinct species, their genetic variability, and the variety of ecosystems they inhabit. sasitorn suwannathep

sasitorn suwannathep Source: http://www.brazadv.com/images/biodiversity.bmp

Environmental Objectives(Con’t) • The goals of environmental quality, sustainable development, and biodiversity setan 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. sasitorn suwannathep

EnvironmentalPolicy 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. sasitorn suwannathep

EnvironmentalPolicy 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. sasitorn suwannathep

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 Gov’t Environmental Protection Agency sasitorn suwannathep

EnvironmentalPolicy Planning : An Overview • Policy PlanningProcess Tool • Risk Analysis • Risk Assessment • Risk Management sasitorn suwannathep

EnvironmentalPolicy 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 quantifyhow the effects change with the increased exposure to the hazard. sasitorn suwannathep

EnvironmentalPolicy 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. sasitorn suwannathep

EnvironmentalPolicy 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. sasitorn suwannathep

EnvironmentalPolicy 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. sasitorn suwannathep

EnvironmentalPolicy Planning : An Overview • Risk Analysis • Risk Management • Government’s Overall Policy Approach: • Command-and-control approach : the RegulatoryApproach 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. sasitorn suwannathep

sasitorn suwannathep http://www.ijc.org/rel/boards/wqb/psfig3.gif

EnvironmentalPolicy 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. sasitorn suwannathep

The End Next lecture will be on Nov 22, 2009 at Room LNG 604 School of Liberal Arts Building sasitorn suwannathep

ENV 536: Environmental Economics and Policy (Lecture 2)