1. Chapter 1 The Role of Economics in Environmental Management

4. Economics and the Environment
Economic theory explains what we observe in reality, including environmental problems, and tries to predict what will happen
Use two basic models:
Circular Flow Model
Materials Balance Model

5. Circular Flow Model
Shows the real and monetary flows of economic activity through the output and factor markets
Model the relationship between economic activity and the environment
Does not show the linkage between economic activity and the environment

6. Circular Flow Model

7. Materials Balance Model
Expand on circular flow model
Shows links between economic activity and the natural environment via flow of residuals from the economy to the environment
This is Environmental Economics
Residuals are pollution remaining in the environment after some process has occurred
Residuals can be delayed, but not prevented, through recovery, recycling, and reuse
Law of Thermodynamics for economists: planet’s resources won’t last forever

8. Materials Balance Model
Source: Adapted from Kneese, Ayres, and D'Arge (1970).

9. What Causes Environmental Damage?
Natural Pollutants arise from non-artificial processes in nature
e.g., ocean salt spray, pollen
Anthropogenic Pollutants are human-induced and include all residuals associated with consumption and production
e.g., chemical wastes, gases from combustion
Of greater concern to environmental economists
Focus on anthropogenic pollutants

10. Sources of Pollution Sources grouped by mobility
Stationary Sources: fixed-site
Mobile Source: any nonstationary source
Sources grouped by identifiability
Point source: single identifiable source
Nonpoint Source: a source that cannot be accurately identified, degrading in a diffuse way

11. Scope of Environmental Damage
Local Pollution
Damage not far from the source
e.g., urban smog
Regional Pollution
Damage extends well beyond the source
e.g., acidic deposition
Global Pollution
Involving widespread environmental effects with global implications
e.g., global warming, ozone depletion

12. Examples of pollution

16. April 20, 2010: Deepwater Horizon Explosion

19. What do we want the environment to look like?
Environmental Quality – reduction in anthropogenic contamination to socially acceptable levels
Sustainable Development – management of resources to ensure long-term quality and abundance (economists’ version?)
Biodiversity – assuring the variety of distinct species, genetic variability, and variety of inhabitable ecosystems

20. Environmental Policy Planning
Environmental planning involves many segments of society
In the U.S., the Environmental Protection Agency (EPA) acts as liaison to numerous constituents within each sector

21. Environmental Policy Planning

22. Environmental Laws * Atomic Energy Act (AEA)
* Energy Independence and Security Act (EISA)
* Nuclear Waste Policy Act (NWPA)
* Chemical Safety Information, Site Security and Fuels Regulatory Relief Act
* Energy Policy Act
* Occupational Safety and Health (OSHA)
* Federal Food, Drug, and Cosmetic Act (FFDCA)
* Clean Air Act (CAA)
* Oil Pollution Act (OPA)
* Clean Water Act (CWA)
* Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)
* Pesticide Registration Improvement Act (PRIA)
* Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, or Superfund)
* Food Quality Protection Act (FQPA)
* Pollution Prevention Act (PPA)
* Resource Conservation and Recovery Act (RCRA)
* Marine Protection, Research, and Sanctuaries Act (MPRSA, also known as the Ocean Dumping Act)
* Superfund Amendments and Reauthorization Act (SARA)
* Safe Drinking Water Act (SDWA)
* Shore Protection Act (SPA)
* Emergency Planning and Community Right-to-Know Act (EPCRA)
* National Environmental Policy Act (NEPA) from 1969
* Toxic Substances Control Act (TSCA)
* National Technology Transfer and Advancement Act (NTTAA)
* Endangered Species Act (ESA)
* Noise Control Act

23. Government Policy Approach
Command-and-Control approach –
tell people what to do
Market approach – create incentives (=prices) for people to do the ‘right’ thing

24. Review of key ideas How economy is linked to environment
How to think about pollution
The policy of managing the environment

25. Risk Analysis Two decision-making procedures
Risk Assessment: qualitative and quantitative evaluation of risk posed by an environmental hazard
Risk Management: decision-making process of choosing from alternative responses to environmental risk

26. Risk Management Economic Criteria Equity Criterion
Allocative efficiency – requires resources to be appropriated such that benefits equal costs
Cost-effectiveness – requires the least amount of resources be used to achieve an objective
Equity Criterion
Environmental justice – concerned with the fairness of the environmental risk burden across segments of society or geographic region

27. Efficiency and fairness may conflict