Environmental Policy Choices in Developing Economies

1. Environmental Policy Choices in Developing Economies Lecture 22

2. The Environment and Development • Solving the economic development problem is part of addressing local and global environmental concerns • Sustainability cannot be achieved unless poverty is directly addressed. What are the links?

3. 1. Many environmental problems are problems of poverty • Unsafe drinking water • Inadequate sewage facilities • Indoor air pollution

4. Safe Water and Sanitation by Income

5. 2. Conserving Resources • Poor people often put an unsustainable burden on the natural capital in their immediate environment • Higher consumption in rich countries has a substantially larger global impact

6. 3. “Demand” for Pollution Control • Richer people “demand” more pollution control • Environmental Kuznets Curve (EKC) Hypothesis • As economic growth proceeds, certain types of pollution problems first get worse and then get better

7. Regulated and Unregulated Pollutants by Income

8. Explanations for the EKC • Rising Education • Political demand for pollution control • Shift in industrial composition • Relative risk considerations: is environmental quality a “luxury good”?

9. 4. Population Growth • Population growth slows with increased income • As societies grow wealthier, families almost universally have fewer children

10. World Population, 1900-2100

11. Consumption and the Global Environment • Consumption-pollution link 1. Rich country consumption responsible for 2/3 of global pollution 2. High consumption in rich countries is responsible for environmental degradation in poor countries

12. Natural Capital and Development • Demand for resources in rich countries has depleted the natural capital stock in poor countries, WITHOUT investment of resource rents: • Colonial governments • Falling relative prices for primary resources • Low taxes on resource based industries • Spending on military and imported consumption goods for elites • Debt repayment

13. Debt • Latin American external debt • 1960: $7.2 billion • 1982: $315.3 billion • Costa Rica’s debt: $960 per capita, more than 1/3 the average yearly income • Profits from cattle ranching go towards paying off this debt… Advantages for Sustainable Development • Relatively effective governmental bureaucracy • Few military expenses • Commitment to education, especially of women • Advanced welfare system

14. Global Debt Relief • Watch the movie! http://www.live8live.com • 2005 G* Summit: Debt forgiveness for 18 poor countries, subject to “conditionality” • Still only 1/6 of global debt of low incomc countries

15. Envisioning a Sustainable Future • Bruntland Commission Report (Our Common Future) • “Sustainable development” gains widespread currency • Brighter future will not come without hard and conscious work • Four key sustainability steps

16. Sustainability Steps • Population and human resources • Food security • Improved technology • Resource conservation

17. Guns vs Sustainable Butter

18. Benefit-Cost Analysis • Environmental Damage: • Impact on human health • Soil fertility • Resource depletion • Costs of environmental deterioration not assessed properly • Measuring Benefits/Costs of environmental program • WTP: Underestimate the true value • Discounting

19. Altering Current Policies • Economic growth and negative environmental impact • Examples: • Subsidizing pesticides • Flood insurance • Lower incentive to conserve timber stocks

20. Institutional Policy: Property Rights • Economic development includes modern economic institutions • Text discusses the resource depletion in Ethiopia • Why rising market price of fuel wood  deforestation? • Open access resources: No owner! • Socially desirable to conserve a particular resource

21. Cont’d • Individual or small-group property rights • Private land owners can’t defend the boundaries • Institutions to settle land-use conflicts • Avoid ill-defined rights and open-access externalities

22. Population Policy as Environmental Policy • Total environmental impact: • Environmental impact per person * Number of people • Policies leading to lower population growth rate (in developing economies) not necessarily lead to lower environmental impact! • Population policies are no substitute for environmental policies on their own

23. Command-and-Control or Market Incentives? • CAC Strategies: Direct and simple with uniform standards • Easy monitoring • Decentralized policies: developed world that has more sophisticated implementation and enforcement machinery • Spectrum of developing countries

24. The Role of Developed Countries • Technology transfer: • Of technology, knowledge and skills that can provide the impetus for economic development • International environmental treaties: Montreal Protocol • Develop new technologies and procedures • Transfer those ideas “effectively”

25. The Role of Developed Countries • Debt-For-Nature Swaps • Buy debts in exchange for environmental conservation • Might be effective as an environmental tool but not as effective as debt-reduction tool • Enforcement • Environmental values in international aid institutions