2 Economy Economic Resources System of production, distribution and consumption of goods and services that satisfies people’s wants or needsEconomic ResourcesNatural resourcesHuman resourcesFinancial resourcesManufactured resources
3 Economic Systems Command and Market Command – Government makes all economic decisionsTwo types of Market systemsPure Free Market – All economic decisions are based solely on competitive interactions of demand, supply and price. All other factors are constant.Capitalist Market – Reality based, designed to subvert many of the theoretical conditions of the Pure Free Market
4 Economists and the Environmental Viewpoint Conventional Economists -Environment is a subsystem of the economyNatural resources are important but not vital – can find substitutesBecause of human ingenuity – depletion and degradation of natural resources will not hinder economic growth
5 Figure 26-6 Page 694 Capitalist Market Economic System Flow of money Money flows fromhouseholds to businessesto pay for productsProducts flow frombusinesses to householdsFlow of productsHouseholdsBusinessesFlow of factors of productionLabor and other factors ofproduction flow fromhouseholds to businessesMoney flows from businessesto households to pay forlabor and other productionFlow of money
6 Ecological Economist - Economy is a subsystem of the environmentNatural resources are vitalConventional economic growth is unsustainable because it depletes or degrades the environment on which it dependsIntegrates ecology with economy
7 Figure 26-7 Page 694 sun EARTH Heat Economic Systems Natural Depletion ofnonrenewableresourcesNaturalCapitalProductionAir; water,land, soil,biodiversity,minerals,raw materials,energyresources,and dilution,degradation,and recyclingservicesDegradation anddepletion of renewableresources used fasterthan replenishedConsumptionPollution and wastefrom overloadingnature’s waste disposaland recycling systemsFigure 26-7 Page 694Recycling and reuse
8 Eco - economy Uses renewable solar energy Mimics nutrient cycles by replenishing nutrients, disposes of waste, pollution prevention based on reuse and recyclingDoesn’t deplete the earths net primary productivityDoes not exceed the sustainable yields of ecosystems that support all economiesPreserves biodiversityStabilizes population growth to be “in-balance” with resource consumption
9 What will it take?Use ecological indicators to monitor economic and ecological healthPricing that includes harmful environmental effectsShift subsidies – reward sustainability, discourage harmful forms of growthShift taxes to pollution and waste from income and wealthUse eco-labeling to identify environmentally friendly products and services
11 Reasons GNI(P) and GDP are poor measures of economic and environmental health and human well-being They hide the harmful environmental and social effects of producing goods and servicesThey do not include the depletion and degradation of natural resources or assets on which all economies dependThey do not include many beneficial transactions that meet basic needs in which no money changes handsThey hide enormous waste of natural and human resources because they measure only money spent, not value receivedThey tell us nothing about income distribution and economic justice
12 Costs and Pricing Internal Costs - All of the costs associated with manufacturing, marketing, maintaining, delivery, and sales of goods or services.External Costs -Harmful effects of producing the goods and services, such as depletion of non-renewable resources, production of solid and hazardous waste, air and water pollution, land disruption, reduction of biodiversity, and contributions to climate change.
13 Full-cost Pricing Results of internalizing external costs Currently dealing with harmful external costs by:Levy taxesPass laws and develop regulationsProvide subsidiesUsing strategies that encourage or force producers to include most, if not all, of the costs in their market price
14 Results of full-cost pricing Prevention would be more profitable than clean-upWaste reduction, recycling and reuse would be more profitable than dealing with the waste after the fact.
15 Bad news:Market prices for most things would riseGovernment would have to reduce taxes for consumers, and stop subsidies for producers to off-set rise in pricesGood news:Overall price will be the same.More information on products for consideration by consumersEncourages more resource-efficient and less-polluting methods of productionMore “Green” products
16 What’s Holding us back?Many producers of wasteful or harmful products would price themselves out of businessProducers would have to give up current subsidies that support the ability to hide harmful external costsPrices of harmful but desirable goods and services would riseHard to put a price tag on many harmful environmental and health costs.Many are unaware they are paying external costs
17 Economics of Pollution Cost of removing pollutants goes up as we try to remove all pollutants.At some point the cost of pollution control is greater than the harmful costs of pollution to societyVery difficult to determine the actual harmful costs of pollution
18 Assigning monetary values to resources and pollution costs Mitigation costs-Costs of offsetting the damagesWillingness to pay -Survey public as to how much they would pay to avoid the problemMaintenance and protection costs -Cost of protecting the quality of various natural resources
19 Costs Associated with Pollution Direct costsAssociated with prevention or clean-up.Indirect costsIncurred by governments in regulating pollution and damages to private revenues affected by pollution.Repercussion costsCosts to polluting company because of image damage.
20 Factors affecting how a natural resource is used or managed Discount ratesTime preferencesOpportunity costsGov’t subsidies and tax breaksTaxesEthics
21 Benefit-Cost Analysis Compares the estimated short-term and long-term benefits and costs for various courses of actionIssues with the benefit-cost analysisWho benefits and who is harmed?Many things we value cannot be reduced to monetary value.Can be manipulated to desired outcome for either side of the issue.
22 Using Regulation and Market Forces to Improve Environmental Quality. Regulations - set pollution standards, regulate harmful activities, ban release of toxic materials, protect finite resourcesNeed to be “innovation-friendly”Emphasize pollution control and waste reductionRequires affected parties to participate in the developing regulations and timetablesSets goals, but allows freedom in meeting those goalsSets strict enough standards to promote real innovationEstablishes well-defined deadlinesUses market incentives to encourage compliance and innovation
23 What we reward, we tend to get more of, and what we discourage we tend to get less of. Economic Incentives - rewardsPhase in government subsidies and tax breaks that encourage environmentally beneficial behavior and phase out those that encourage harmful behaviorsEco-labeling – encourages development of green products and services and helps consumers make decisions.
24 Economic disincentives - punishments Green taxes or effluent fees – used as a tax shift, not an additional burden.User fees – for removal of materials from, or use of public landsPosting pollution-prevention bonds for new major projects
25 Tradable Pollution and Resource Rights Government sets total limit on emissions or resource useIssue permits or auction off to manufacturers or usersPermit holders can:Use as credit against future expansionUse it in another part of their operationSell it to other companies
26 Table 26-1 Economic Solutions to Pollution and Resource Use Pg. 706
30 How can we reduce poverty? Developing countries governments policy changes:Shift more of the national budget to help rural and urban poor work their way out of povertyGive villages, villagers, and urban poor title to common land and to the crops and trees they plant on them.
31 Developed Countries could: Forgive at least 60% of the debt form developing countriesIncrease nonmilitary government and private aid directly to the poor from developing countries, to make them more self-reliant.Encourage banks and other organizations to make small loans to those poor wanting to increase their incomeRequire international lending agencies to use standard environmental and social impact analysis to evaluate and proposed development project before it is fundedCarefully monitor all projects, and halt funding if environmental safeguards are not followedHelp developing countries increase resource productivityEstablish policies that stabilize populations of all countries
32 Figure 26-14 Page 710 Economics Environmentally Sustainable Economy (Eco-Economy)Resource Useand PollutionReward (subsidize) earth-sustaining behaviorPenalize (tax and do notsubsidize) earth-degrading behaviorTax pollution and wasteinstead of wages andprofitsUse full-cost pricingSell more services insteadof more thingsDo not deplete naturalcapitalLive off income fromnatural capitalReduce povertyReduce resource useand waste by refusing,reducing, reusing, andrecyclingImprove energyefficiencyRely more onrenewable solar andgeothermal energyShift from a carbonbased (fossil fuel)economy to asolar–hydrogen basedeconomyEcology andPopulationMimic naturePreserve biodiversityRepair ecologicaldamageStabilize population byreducing fertility
33 Eco-Friendly Business Sunset BusinessEco-Friendly BusinessFigure Page 711Coal miningOil productionNuclear powerEnergy-wasting motorvehiclesMiningThrowaway productsClearcut loggingPaper productionConventional pesticideproductionUnsustainable farmingWater well drillingConventional economicsConventional engineering,design, and architectureBusiness travelSolar cell productionHydrogen productionFuel-cell productionWind turbine productionWind farm constructionGeothermal energyproductionProduction of energy-efficient fuel-cell cars,trucks, and busesConventional and electricbicycle productionLight-rail constructionSustainable agricultureIntegrated pestManagementAgricultureRecycling, reuse, andcompostingSoil conservationWater conservationPollution preventionEcoindustrial designBiodiversitymanagement andprotectionEcological restorationDisease preventionEnvironmentalengineering, design,and architectureEcocity urban designEnvironmental scienceeducationEcological economicsaccountingTeleconferencing