ECONOMICS AND ENVIRONMENT saklviTüal½yCatiRKb;RKg NATIONAL UNIVERSITY OF MANAGEMENT karRKb;RKgbriyakasGaCIvkmµ ENVIRONMENT BUSINESS MANAGEMENT CHAPTER VI ECONOMICS AND ENVIRONMENT PREPARED BY SAY PUNNAREAY, MBA

 How much is clean air worth  How much is clean air worth?  Can you charge somebody for damaging your air?  How much are you willing to pay for clean air?  Should you have to pay for clean air?  What market incentives are there for research on the environment?  How can the environment be priced and sold?  Does Cambodia have any mechanisms for valuing its environment?

 What is a market. A system of exchange  What is exchanged  What is a market? A system of exchange  What is exchanged? Resources: land, labor, capital (goods or services in some form)  How does the market work?  Matching of supply and demand

1. WHAT ENABLES THE MARKET TO WORK?  Price or Value setting  Profit motive  Private property  Government and other regulating institutions

 General market failures: - What company did you buy your air from? - How much did you pay for your air? How was that price set? - How clean was the air you bought? How do you know? - How can a company stop other companies from dirtying its air? What can you do if someone makes your air dirty after you bought it? - What rate of return should a company expect to get from investing in air quality?

 Environmental market failures: - Unprimed use values; option values; existence values; bequest values. - Lack of information - Externalities - Common Access Resources/Sinks - Discounting the future - Missing Markets

 Environmental economics From Market Failure to Government Failure  Limited information of how to deal with specific environmental problems (of area or industry) and of firms’ capability to deal with or hide environmental impact.  Limited resources to regulate, monitor and enforce Command and Control regulations: uniform standards and technologies

 Cost effectiveness: example, emission trading credits 3. POLICY GUIDELINES FROM ENVIRONMENTAL ECONOMICS Benefits of Using the Market (as opposed to CAC)  Cost effectiveness: example, emission trading credits  Substitution and technological advance: example, green taxes. Other institution/market based schemes: deposit refund schemes, environmental bonds, transferable quotas, transfer of development rights.

4. BETTER VALUATION OF NON-MARKET VALUED ASSETS  Financial Costs  Averting Behavior  Travel Cost Method  Hedonic Pricing  Contingent Evaluation For: Better Cost-Benefit Analysis, regulations, fines

5. POLICY GUIDELINES FROM ECOLOGICAL ECONOMICS Daly Rule  "Never reduce the stock of natural capital below a level that generates a sustained yield unless good substitutes are available for the services generated."  Index of Sustainable Economic Welfare (ISEW)  Ecological tariffs on free trade  Community based sustainability through self-sufficiency and diversification

6. FREE TRADE LIMITATIONS  Regional specialization obscures view of resource exploitation, depresses ecological and social laws, weakens terms of trade and impoverishes landholders  Externalities from the shipping of goods around the world  Therefore, tariffs to compensate or reduce free trade