17THMILLER/SPOOLMAN

LIVING IN THE ENVIRONMENT

Chapter 23Economics, Environment, and Sustainability

Case Study: Making Microloans to the Poor (1)

• Micro-lending or microfinance

• 1983: Muhammad Yunus• Grameen (Village) Bank in Bangladesh• Provides microloans; mostly to women• “Solidarity” groups• How does it work?

• Half of borrowers eventually live above the poverty line

Case Study: Making Microloans to the Poor (2)

• 2006: Muhammad Yunus• Nobel Peace Prize

• 2006: Citibank and TIAA-Cref • Microloans

Muhammed Yunus with Nobel Prize

Fig. 23-1, p. 613

23-1 How Are Economic Systems Related to the Biosphere?

• Concept 23-1 Ecological economists and most sustainability experts regard human economic systems as subsystems of the biosphere

Economic Systems Are Supported by Three Types of Resources

• Economic systems are supported by• Natural capital• Human capital, human resources• Manufactured capital, manufactured resources

Three Types of Resources Are Used to Produce Goods and Services

Fig. 23-2, p. 615

Fig. 23-2, p. 615

+ + =

Natural Capital Manufactured Capital

Human Capital Goods and Services

Market Economic Systems Depend on Interactions between Buyers and Sellers (1)• Supply, demand, market price equilibrium point

• True free market system• No company or group controls prices of a good or

service• Market prices include all direct and indirect costs (full-

cost pricing)• Consumers have full information about beneficial and

harmful environmental effects of goods and services

Market Economic Systems Depend on Interactions between Buyers and Sellers (2)

• Real world• Tax breaks• Subsidies • Trade barriers• Withholding of negative information

Supply, Demand, and Market Equilibrium for a Good in a Market Economic System

Fig. 23-3, p. 615

Fig. 23-3, p. 615

HighDemand Supply

Pric

e

Market equilibrium

LowLow High

Quantity

Economic Growth and Economic Development

• Economic growth• Increased capacity to supply goods and services• Requires increased production and consumption• Requires more consumers

• Economic development• Improvement of living standards

• Environmentally sustainable economic development

Gross World Product, 1970-2008

Figure 1, Supplement 9

Gross World Product per Person, 1970-2008

Figure 2, Supplement 9

Governments Intervene to Help Correct Market Failures

• Private goods

• Public services• Environmental protection• National security• Police and fire protection• Safe food and water• Provided by government because private companies

can’t or won’t

Economists Disagree over Natural Capital, Sustainable Economic Growth (1)

• High-throughput economies• Resources flow through and end up in planetary sinks

where pollutant can be at harmful levels

• Models of ecological economists • Economic systems as subsystems of biosphere• Conventional economic growth unsustainable• Wealth from depletion of natural capital

Economists Disagree over Natural Capital, Sustainable Economic Growth (2)

• Ecological models’ three assumptions1. Resources are limited and shouldn’t be wasted2. Encourage environmentally beneficial and

sustainable forms of economic development3. Full-cost pricing needed to take into account

harmful environmental and health effects of some goods and services

• Environmental economists take middle ground between classical and ecological economists

High-Throughput Economies Rely on Ever-Increasing Energy, Matter Flow

Fig. 23-4, p. 617

Fig. 23-4, p. 617

Inputs (from environment)

System throughputs Outputs (into environment)

High-quality energy

Low-quality energy (heat)

High-waste economy

High-quality matter

Waste and pollution

Ecological Economists: Economies Are Human Subsystems of the Biosphere

Fig. 23-5, p. 617

Fig. 23-5, p. 617

Solar Capital

Goods and services

Economic Systems

Heat

ProductionNatural Capital

Depletion of nonrenewable resourcesNatural resources such as

air, land, soil, biodiversity, minerals, and energy, and natural services such as air and water purification, nutrient cycling, and climate control

Consumption

Degradation of renewable resources (used faster than replenished)

Pollution and waste (overloading nature’s waste disposal and recycling systems)

What Is the Purpose of a Business?

• Make a profit for its owners and investors• Sustainability is about staying in business• Another definition – “Making a quality product and

earn a profit without harming the environment.”

23-2 How Can We Put Values on Natural Capital and Control Pollution and Resource Use?

• Concept 23-2A Economists have developed several ways to estimate the present and future values of a resource or ecological service, and optimum levels of pollution control and resource use.

• Concept 23-2B Comparing the likely costs and benefits of an environmental action is useful, but it involves many uncertainties.

Protecting Natural Capital

• Estimating the values of the earth’s natural capital

• Estimate nonuse values • Existence value• Aesthetic value• Bequest value, option value

Estimating the Future Value of a Resource Is Controversial

• Discount rates• Estimate of a resource’s future economic value

compared to its present value

• Proponents of a high discount rate

• Critics of a high discount

We Can Estimate Optimum Levels of Pollution Control and Resource Use

• Marginal cost of resource production

• Optimum level of resource use

• Optimum level for pollution cleanup

Optimum Resource Use

Fig. 23-6, p. 620

Fig. 23-6, p. 620

High

Marginal cost of resource productionMarginal benefit

of resource use

Cost

Optimum level of resource use

Low

0 25

Coal removed (%)

75 10050

Cost-Benefit Analysis Is a Useful but Crude Tool

• Cost-benefit analysis follows guidelines• State all assumptions used• Include estimates of the ecological services• Estimate short-and long-term benefits and costs• Compare the costs and benefits of alternative courses

of action

• Always uncertainties

23-3 How Can We Use Economic Tools to Deal with Environmental Problems?

• Concept 23-3 We can use resources more sustainably by including their harmful environmental and health costs in the market prices of goods and services (full-cost pricing); by subsidizing environmentally beneficial goods and services; and by taxing pollution and waste instead of wages and profits.

Most Things Cost a Lot More Than We Might Think

• Market price, direct price

• Indirect, external, or hidden costs

• Direct and indirect costs of a car

• Should indirect costs be part of the price of goods?• Economists differ in their opinions

Environmental Economic Indicators Could Help Us Reduce Our Environmental Impact

• Measurement and comparison of the economic output of nations• Gross domestic product (GDP) • Per capita GDP

• Newer methods of comparison• Genuine progress indicator (GPI) • Gross National Happiness (GNH)

Monitoring Environmental Progress: Comparing U.S. Per Capita GDP and GPI

Fig. 23-7, p. 622

Fig. 23-7, p. 622

35,000

30,000

25,000

20,000

Per capita gross domestic product (GDP)15,000

1996

Dol

lars

per

per

son

10,000

5,000Per capita genuine progress indicator (GPI)

0

1950 1960 1970 1980 1990 2000Year

We Can Include Harmful Environmental Costs in the Prices of Goods, Services

• Environmentally honest market system

• Why isn’t full-cost pricing more widely used?1. Many businesses would have to raise prices and

would go out of business2. Difficult to estimate environmental and health costs3. Businesses have strong influence on government –

preferential regulations, tax breaks, subsidies

Label Environmentally Beneficial Goods and Services

• Product eco-labeling

• Certification programs

• Greenwashing

Reward Environmentally Sustainable Businesses

• Phase out environmentally harmful subsidies and tax breaks

• Phase in environmentally beneficial subsidies and tax breaks for pollution prevention

• Political difficulties

Tax Pollution and Wastes Instead of Wages and Profits

• Green taxes, ecotaxes • So that harmful products and services are at true cost

• Steps for successful implementation of green taxes

• Success stories in Europe

Trade-Offs: Environmental Taxes and Fees

Fig. 23-8, p. 624

Fig. 23-8, p. 624

Trade-Offs

Environmental Taxes and Fees

Help bring about full-cost pricing

Low-income groups are penalized unless safety nets are provided

Encourage businesses to develop environmentally beneficial technologies and goods to save money

Hard to determine optimal level for taxes and fees

Governments may use money as general revenue instead of improving environmental quality and reducing taxes on income, payroll, and profits

Easily administered by existing tax agencies

DisadvantagesAdvantages

Environmental Laws and Regulations Can Discourage or Encourage Innovation

• Environmental regulation

• Command and control approach

• Incentive-based environmental regulations

• Innovation-friendly regulations

We Can Use the Marketplace to Reduce Pollution and Resource Waste

• Incentive-based regulation example• Tradable pollution or resource-use permits

• Cap-and-trade approach used to reduce SO2

• Advantages

• Disadvantages

Trade-Offs: Tradable Environmental Permits

Fig. 23-9, p. 625

Fig. 23-9, p. 625

Tradable Environmental Permits

Advantages Disadvantages

Big polluters and resource wasters can buy their way out

Flexible

Easy to administerMay not reduce pollution at dirtiest plantsEncourage pollution

prevention and waste reduction Caps can be too high

and not regularly reduced to promote progress

Permit prices determined by market transactions

Self-monitoring of emissions can allow cheating

Trade-Offs

Reduce Pollution and Resource Waste by Selling Services Instead of Things

• 1980s: Braungart and Stahl• New economic model

• Service-flow economy, eco-lease (rent) services• Xerox• Carrier• Ray Anderson: lease carpets in the future

Individuals Matter: Ray Anderson

• CEO of Interface, largest commercial manufacturer of carpet tiles

• Goals• Zero waste• Greatly reduce energy use• Reduce fossil fuel use• Rely on solar energy• Copying nature

• How’s it working?

Ray Anderson

Fig. 23-A, p. 626

23-4 How Can Reducing Poverty Help Us to Deal with Environmental Problems?

• Concept 23-4 Reducing poverty can help us to reduce population growth, resource use, and environmental degradation.

The Gap between the Rich and the Poor Is Getting Wider

• Poverty• 1.4 billion people live on less than $1.25 per day

• Trickle-down effect

• Flooding up

• Wealth gap

Poor Family Members Struggling to Live in Mumbai, India

Fig. 23-10, p. 627

We Can Reduce Poverty (1)

• South Korea and Singapore reduced poverty by• Education• Hard work• Discipline• Attracted investment capital

We Can Reduce Poverty (2)

• Important measures• Combat malnutrition and infectious diseases• Universal primary school education• Stabilize population growth• Reduce total and per-capita ecological footprints• Large investments in small-scale infrastructure

Revisiting Microlending

• Microloans give hope to the poor

• Microloans help more than direct aid

• Spreading around the world

• Kiva.org

Solar Panel Purchased with Microloan in India

Fig. 23-11, p. 629

Achieve the World’s Millennium Development Goals

• 2000: Millennium Development Goals• Sharply reduce hunger and poverty• Improve health care• Empower women• Environmental sustainability by 2015• Developed countries: spend 0.7% of national budget

toward these goals

• How is it working?

What Should Our Priorities Be?

Fig. 23-12, p. 629

Fig. 23-12, p. 629

Expenditures per year needed to

Expenditures per year (2008)

Reforest the earth $6 billion World military $1.4 trillion

Protect tropical forests $8 billion U. S. military $734 billion

Restore rangelands $9 billionU. S. dog food $39 billion

U. S. highways $29 billionStabilize water tables $10 billion

U. S. foreign aid $27 billionDeal with global

HIV/AIDS $10 billionU. S. potato chips and similar snacks $22 billion

Restore fisheries $13 billion U. S. cosmetics $8 billionProvide universal primary

education and eliminate illiteracy

$14 billion U. S. EPA $7.2 billion

Protect topsoil on cropland

$24 billion

Protect biodiversity $31 billionProvide basic health

care for all $33 billionProvide clean drinking

water and sewage treatment for all

$37 billion

Eliminate hunger and malnutrition

$48 billion

Total Earth Restoration and Social Budget

$245 billion

23-5 Making the Transition to More Environmentally Sustainable Economics

• Concept 23-5 We can use the three principles of sustainability as well as various economic and environmental strategies to develop more environmentally sustainable economies.

We Are Living Unsustainably

• Depleting natural capital

• Environmental alarm bells going off

• Matter recycling and reuse economies• Mimic nature

Use Lessons from Nature to Shift to More Sustainable Economies

• Donella Meadows: contrasts the views of neoclassical economists and ecological economists

• Best long-term solution is a shift to• Low-throughput low-waste, economy

Solutions: Lessons from Nature: A Low Throughput Economy

Fig. 23-13, p. 631

Fig. 23-13, p. 631

Inputs (from environment)

Outputs (into environment)

System throughputs

High-quality energy

Energy conservation

Low-quality energy (heat)

Low-waste economyWaste and

pollution prevention

Pollution control Waste and pollution

High-quality matter

Recycle and reuse

Make Money and Create Jobs by Shifting to an Eco-Economy

• Hawken, Brown, and other environmental business leaders• Transition to environmentally sustainable economies• Some companies will disappear• New jobs will be created• Economic succession• Green jobs

Solutions: Principles for Shifting to a More Environmentally Sustainable Economy

Fig. 23-14, p. 631

Fig. 23-14, p. 631

Environmentally Sustainable Economy (Eco-Economy)

EconomicsReward (subsidize) environmentally sustainable economic developmentPenalize (tax and do not subsidize) environmentally harmful economic growthShift taxes from wages and profits to pollution and wasteUse full-cost pricingSell more services instead of more thingsDo not deplete or degrade natural capital

Live off income from natural capitalReduce povertyUse environmental indicators to measure progress

Certify sustainable practices and productsUse eco-labels on products

Resource Use and PollutionCut resource use and waste by reducing, reusing, and recyclingImprove energy efficiencyRely more on renewable solar, wind and geothermal energyShift from a nonrenewable carbon-based (fossil fuel) economy to a non-carbon renewable energy economy

Ecology and PopulationMimic naturePreserve biodiversityRepair ecological damageStabilize human population

Fig. 23-14, p. 630

Environmentally Sustainable Economy (Eco-Economy)

EconomicsReward (subsidize) environmentally sustainable economic development

Penalize (tax and do not subsidize) environmentally harmful economic growthShift taxes from wages and profits to pollution and waste

Use full-cost pricingSell more services instead of more things

Do not deplete or degrade natural capital

Live off income from natural capitalReduce poverty

Use environmental indicators to measure progressCertify sustainable practices and productsUse eco-labels on products

Stepped Art

Resource Use and PollutionCut resource use and waste by reducing, reusing, and recyclingImprove energy efficiencyRely more on renewable solar and geothermal energy

Shift from a nonrenewable carbon-based (fossil fuel) economy to a non-carbon renewable energy economy

Ecology and Population

Mimic nature

Preserve biodiversity

Repair ecological damage

Stabilize human population

Solutions: Environmentally Sustainable Development

Fig. 23-15, p. 632

Fig. 23-15, p. 632

No-till cultivationProduction of energy-efficient electric cars recharged by wind and solar energy

Forest conservation

Sustainable fishing and aquaculture

Sustainable organic

agriculture and drip-irrigation

High-speed trains

Solar-cell fields

Ecovillage

Wind farms

BicyclingWater conservation

Communities of passive solar homes (ecovillage)

Recycling, reuse, and composting

Recycling facility

Green Careers

Fig. 23-16, p. 633

Fig. 23-16, p. 633

Environmentally Sustainable Businesses and Careers

Aquaculture Environmental law

Biodiversity protection

Environmental nanotechnology

Biofuels Fuel cell technology

Climate change research

Geographic information systems (GIS)

Conservation biology Hydrogen energy

Geothermal geologistEcotourism management

HydrologistEnergy-efficient product design Marine science

Pollution preventionEnvironmental chemistry

Selling services in place of products

Environmental design and architecture

Recycling and reuse

Sustainable agriculture

Environmental economics

Solar cell technology

Sustainable forestryEnvironmental education

Urban gardeningEnvironmental engineering

Waste reductionUrban planning

Environmental entrepreneur Watershed

hydrologist

Environmental healthWind energyWater conservation

Green Career: Installing Solar Cells

Fig. 23-17, p. 633

Three Big Ideas

1. Making a transition to more sustainable economies will require finding ways to estimate and include the harmful environmental and health costs of producing goods and services in their market prices.

2. Making this economic transition will also mean phasing out environmentally harmful subsidies and tax breaks, and replacing them with environmentally beneficial subsidies and tax breaks.

3. Other tools to use in this transition are to tax pollution and wastes instead of wages and profits, and to use most of the revenues from these taxes to promote environmental sustainability and to reduce poverty.

Three Big Ideas