ECONOMICS OF RESOURCES

1. ECONOMICS OF RESOURCES Unit I ECONOMICS OF THE ENVIRONMENT

2. The Market approach to environmental problems • To a firm, the environment represents a factor of production. • it is a declining function of price (the quantity demanded declines as the price rises). • If the environment is offered to producers at a zero price, they will use it in large quantities. • The alternatives, reducing the production of garbage or disposing of it properly, are costly because they require the use of labour, capital and other inputs for which the firm must pay. • The producer weighs the costs of these alternatives against the price of using the environment, which at the moment is often zero.

3. Governments’ traditional method -command and control (CAC) types of regulations, • whereby firms and individuals are told how much pollutants they may emit, the type of technology to use, the goods they may produce, the production processes to employ, etc. • Business firms complain about the high cost of meeting standards, which is long and drawn out and requires years of negotiation between politicians, bureaucrats and industry officials. • Environmentalists complain that regulations are too slow in coming and are not tough enough.

4. An alternative to CAC regulation is one based upon market-related principles. • Economist believes that the pollution is a problem of misallocated resources. • The environment is treated as a good which people like to enjoy, and use it as an input into the production process; it is a valuable resource. • By mispricing the environment, or by setting a zero price for it, the environment is consumed too fast and the means which would preserve it is given least importance. • Thus, we have too much pollution. • In this sense, good economic policies mean good environmental policies.

5. A market-based approach would use the producer‘s profit motive to reduce the level of pollution by charging a valid price for using the environment, rather than the zero price which firms have been habitual to. •  market-based solution to environmental problems would establish some positive price for the use of the environment and then have firms use that price in determining the amount of pollution that they will emit.

6. market-based solutions give the companies a greater incentive to use the new technologies and equipment. market-based solutions operate,connectthe environmental missions with the financial incentives.themarket-based solution often “pays firms to clean up a bit more if the sufficiently low-cost method (technology or process) of doing so can be identified and adopted”

7. Major categories of market-based solutions 1) Environmental subsidies 2)Pollution charge Pollution charge systems “assess a fee or tax on the amount of pollution that a firm or source generates”  • The deposit refund system, is a special case within the pollution charges, is widely used among many countries.

8. What is deposit refund system???? • The deposit refund system asks individuals to pay a deposit for the bottles when they buy the products and pay back the money to them when the bottles are returned.  • Deposit-refunds are used for beverage containers, lead-acid batteries, motor oil, tires, various hazardous materials, electronics, and more.  • In Norway, more than 90% of beer and soft drink bottles which have deposits are re-cycled; however, only 70% of wine bottles are recycled.

9.  the deposit refund system can be used in other similar cases, such as tires and diapers, where disposal expense is very high if individuals throw them away randomly. • In Canada, Ontario holds a US$5 fee deposit for each tire bought. If the buyer returns the used tire to the re-cycle station, the deposit will be returned, then the station will pay for dealing with the used tires in a proper way 

10.  the disposable diapers as an example, people prefer to use them because of their convenience and cheap price compared with other choices like diaper services. However, a large amount of used diapers become a big problem for the dump sites. In this way, people should be charged certain sales tax when they buy the products for the rubbish they make.

11. Imposing Sales tax-This kind of tax which brings money for the reproduction or the environmental management and governance, increase the price for the dirty products and reduce the price for cleaner ones. In this case, individuals will have an incentive to use environmental protection in their daily lives.

12. 3)Carbon credits • What is carbon emission??? -Carbon dioxide (CO2) is a colourless, odourless and non-poisonous gas -Emissions means the release of greenhouse gases into the atmosphere over a specified area and period of time.

13. What causes CO2 ?????? • Human activities such as the burning of oil, coal and gas, as well as deforestation are the primary cause of the increased carbon dioxide concentrations in the atmosphere.

15. Why it is a matter of concern? • It is one of the green house gas.there are other gases too such as water vapor, carbon dioxide, methane, nitrous oxide, and ozone. But the concentration of carbon gas is major.

16. What is carbon Credit?? • It is a certificate showing that the government or company has paid to have a certain amount of carbon dioxide removed from environment. • It is a permit that allows the holder to emit one ton(1000kg) of carbon dioxide which can be traded in the international market at current market price. • It can be bought and sold through number of international brokers, online retailers and trading platforms. • Carbon credits helps giving monetary value to the cost of polluting the air.

18. How it works?????? • Emitters (usually industry, i.e. stationary sources) are allocated an amount of permits to emit, which is supposed to be lower than their annual average level of emissions.  • If they received permits for 70 t CO2e but emit 100 tCO2e • they need permits for 100 tCO2e. So they can either REDUCE their emissions to 70 tCO2e (by producing less, changing their energy source, increasing efficiency, etc.) or they can BUY credits for etxra 30 tCO2e from someone who has extra to sell.

19. Benefits • Restriction on emission • Alternative technology. • Finance for green projects.

20. 4) Internalization of external cost • It means that the price charged for the output should not only include private cost to the producers in fact it should also include external cost to the society. • This can be done through taxes, property rights, tolls, and government subsidies. • An example in the case of pollution would be pollution rights. • The tax would be in the form of pollution rights that companies would bid on and purchase from the government. So, if a company wants pollute more, they would have to pay more money for more pollution rights. This shifts the burden (the costs of higher pollution) from outside the company to inside the company.

21. Other market based solutions 1) Tradable permits. • -Pollution permits involve giving firms a legal right to pollute a certain amount e.g. 100 units of Carbon Dioxide per year. • If the firm produces less pollution it can sell its pollution permits to other firms. • However, if it produces more pollution it has to buy permits from other firms or the government. • The aim of pollution permits is to provide market incentives for firms to reduce pollution and reduce the external costs associated with it. • Pollution permits can also be a way for the government to raise revenue, by selling firms these permits to allow pollution.

22. 2) Lead trading- • started in 1980. • Aimed at offering gasoline refineries one way to reduce lead content in petrol by 10% of its earlier standard. • Environmental protection agency allowed lead credit transactions within refineries. • Refineries could save their lead credits in the bank who have achieved good effects. • These strategy was found comparatively cost effective solution. • EPA assessed that these project was 20% more cost effective than other programs.

23. 3)CFC trading. • What is Chlorofluorocarbons (CFCs) ???? • Chlorofluorocarbons (CFCs) is combination of  carbon (С), chlorine (Cl), and fluorine (F). • CFCs are particularly harmful when released into the atmosphere because of their destructive reaction with O-zone particles, which provide the Earth with a protective layer against UV radiation. • It is found in air conditioners,fridge,spray cans etc.

24. What is CFC trading?? • Marketable permits called chloro-floro-carbon trading(US) • It is an international agreement to protect the ozone layer. • The agreement aims to reduce the use of CFC’s(most detrimental chemical gases in ozone depletion). • The market puts restrictions on the production and consumption process of CFCs. • It distributes an allowance to restrict such activities. • Each CFC is allocated a specific weight according to its depletion potential. • So company have to get the allowance first to produce a certain content of CFC’s. • However,it is considered as a cost effective way compared with other approaches.

25. Evaluation of Market based approaches 1)Absence of supporting regulations-market based approach needs principles and regulations to guarantee its implementation and supervisions.however the relevant values are far from belief. 2) Attitudinal problems-some companies and individuals attitude to the market based solutions is not generally positive. 3)Market apprehensions-most of the individuals prefer traditional method of solutions rather going for market based solutions.

26. Implementation issues-though the market based solutions are found to be less cost effective and more flexible, problems like technology innovations exist. • Inflexibility-varying regulations is a matter of concern for most of the companies. so having good regulations rather than flexible is must.

27. Environment impact assessment • Process of evaluating the likely impacts of a proposed project on environment,culture,humanhealth,society , in both ways benefits as well as adverse. • Why ?????????? • So these impacts can be studied way before the project is started. • It not only helps to predict the impact but also find ways to reduce adverse impacts and shape the project to suit the local environment & present the prediction & options to decision maker.

28. Objectives of EIA. • To identify, predict and evaluate the economic,environmental and social impact of developmental activities. • To provide information on the environmental consequences for decision making. • To promote environmentally sound and sustainable development through the identification of appropriate alternatives and mitigation measures.

29. EIA process • Project screening & scoping- • Screening is the process of deciding on whether an EIA is required. • Scoping is the process of identifying the key environmental issues and is perhaps the most important step in an EIA. • Project design and construction-type of project,area under consideration,types of resources etc • Project operation-how e project will be carried out. • Site characteristics-characteristics of area under project. • Possible environmental impacts- identifying short term and long term impacts and also identifying parties who gets affected.

30. Mitigation measures-how the problems identified can be reduced,avoided or minimize. • Monitoring and auditing measures-comparing predicted and actual impacts. • Socio economics factors-gainers and losers,effects on local/regional/national culture. • Availability of information and resources-availability of experts,views of specialist groups,public etc • EIA report and review-complete report is formed giving all details. • Decision making-project may be accepted or rejected.

31. Benefits of EIA • Better environmental planning and design of a proposal-EIA provides alternatives in the design and location of projects.this can result in the selection of an improved technology,which lowers waste outputs or an environmentally optimum location for a project. • Ensuring compliance with environmental standards-it reduces damage to the environment and disruption to communities.also it avoids fines,penalties etc • Savings in capital and operating costs-EIA avoids undue cost of unanticipated impacts.if the problems are not considered from the start of proposal design then rectification may required later. • Reduced time and costs of approvals of developmental applications-if environmental concerns have been taken into account properly before submission for project approval then it is unlikely that delays will occur in decision making.agood EIA increases the probability of project acceptance by the public.

32. Better information on the environmental impacts of a project-there has been considerable improvement in the quality of EIA over a period of time.it helps in providing adequate,complete and timely information about the possible environmental impacts. • Better decision making-better quality EIA leads to better decision making. • Reduced negative environmental impacts-through redesign and modification of projects,potential negative impacts can be reduced.EIA takes the enviornmental impacts into account in an early stage of project design. • Benefits in terms of public involvement and acceptance,paricipation,conflictmitigation-EIA presents factual information for enlightened public participation and greater involvement of citizens in environmental decision making can also be made to a larger extent.