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ENVIRONMENTAL ECONOMICS
What is it all about?
INTRODUCTION
• Natural Resources : includes all the
‘original’ elements that comprises the
Earth’s natural endowments or the lifesupport systems: air, water, the Earth’s crust
and radiation from the sun.
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• Some representative examples of natural
resources are:
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arable land,
watersheds and wilderness areas,
mineral fuels and nonfuel minerals,
the ability of the natural environment to
degrade waste and absorb ultraviolet light from
the sun.
Natural Resources
• Traditional Classification of Natural
Resources:
Biological
• Renewable
Flow
Recyclable
• Non-renewable
Non-recyclable
Figure 1.1 A Schematic View of the Interrelationship between the Natural
Environment and the Economy
Factors of
Production
The Natural
Environment
Wastes
Environmental
Amenities
The Economy
The Nature and Scope of Environmental
Economics
• The key issues addressed in this course are:
– the causes of environmental degradation
– the need to re-establish the disciplinary
ties between ecology and economics
– the difficulties associated with assigning
ownership rights to environmental
resources
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– the trade-off between environmental
degradation and economic goods and services
– the ineffectiveness of the market, if left alone,
in allocating environmental resources
– assessing the monetary value of environmental
damages
– public policy instruments that can be used to
slow, halt and reverse the deterioration of
environmental resources
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– the macroeconomic effects of environmental
regulations and other resource conservation
policies
– the extent to which technology can be used as a
means of ameliorating environmental
degradation or resource scarcity
– environmental problems that transcend national
boundaries, and thus require international
cooperation for their resolution
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– the limits to economic growth
– the extent to which past experience can be used
to predict future events that are characterized
by considerable economic, technological and
ecological uncertainty
– ethical and moral imperatives for
environmental resource conservation--concern
for the welfare of future generations
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– The interrelationships among population,
poverty and environmental degradation in the
developing countries of the world
– the necessity and viability of sustainable
development
The Unique Features of Environmental
Economics
• First, the ultimate limits to environmental
resource availability are imposed by nature.
That is, their origin, interactions and
reproductive capacity are largely governed by
nature.
• Second, most of these resources have no
readily available markets: for example, clean
air, ozone, the genetic pool of a species, etc.
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• Third, no serious environmental economic
study can be entirely descriptive.
Normative issues such as intergenerational
fairness and distribution of resources
between the poor and the rich nations are
very important.
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• Fourth, uncertainties are unavoidable
considerations in any serious study of
environmental and natural resource issues.
These uncertainties may take several forms,
such as prices, irreversible environmental
damage, or unexpected and sudden species
extinction.
Human Perspectives of Long Term
Global Problems
• Human perspective over space and time:
– “In general, the larger the space and the longer
the time associated with a problem, the smaller
the number of people who are actually
concerned with its solutions.”
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• Possible factors influencing the human
perspectives are:
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Social, cultural and moral values
Economic conditions
Belief (faith) in human wisdom and farsightedness
ignorance