Download Environmental policy

Chapter 5
Environmental
Economics and
Environmental
Policy
Essential Environment:
The Science Behind the Stories
4th Edition
Withgott/Laposata
Lecture Presentations prepared by
Heidi Marcum
© 2012 Pearson Education, Inc.
This lecture will help you understand:
• Economic theory
• Economic growth and health, and sustainability
• Environmental and ecological economics
• U.S. and international
environmental policy
• The environmental
policy process
• Science and policy
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Central Case Study: San Diego and Tijuana
• Rain washes pollutants into Mexico’s Tijuana River
– Then onto U.S and Mexican beaches
• A new sewage treatment facility reached capacity
– In 3 years
• Poor Mexicans suffer most
– Contaminated water, disease, industrial waste
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Economics
• People say protection threatens economic growth
– But environmental protection is good for the economy
• Economics studies how people use resources to provide
goods and services in the face of demand
• Environmental problems are also economic problems
• Ecology and economics come from oikos (household)
• Economy: a social system that converts resources into:
– Goods: manufactured materials that are bought, and
– Services: work done for others as a form of business
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Types of modern economies
• Subsistence economy: people get their daily needs
directly from nature or their own production
– They do not purchase or trade products
• Capitalist market economy: buyers and sellers interact
to determine prices and production of goods and services
• Centrally planned economy: the government determines
how to allocate resources
• Mixed economy: governments intervene in the market
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Governments intervene in a market economy
• In mixed market economies, governments intervene to:
– Eliminate unfair advantages held by single buyers or
sellers
– Provide social services (national defense, medical care,
education)
– Provide safety nets for elderly, disaster victims, etc.
– Manage the commons
– Reduce pollution and other threats to health and quality
of life
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The economy relies on the environment
• Economies receive inputs (resources)
– Process them
– Discharge outputs (waste)
• Traditional
economics ignores
the environment
– But still drives
most policy
decisions
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Environmental view of economics
Human economies are subsets of the environment and
depend crucially on it for goods and services
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Environmental systems support economies
• Economic activity uses natural resources (sun’s energy,
water, trees, rocks, fossil fuels) as “goods”
• Ecosystem services: essential services support the life
that makes economic activities possible
* Soil formation
* Pollination
* Water purification
* Nutrient cycling
* Climate regulation
* Waste recycling
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Economic activities affect the environment
• Resource depletion and generating pollution reduces the
functioning of ecological systems
• Degradation of ecosystem services disrupts economies
– Pollution depresses economic opportunities
• Ecological degradation hurts poor people the most
• Restoring ecosystem services is a prime way to alleviate
poverty
15 of 24 global ecosystem services are being degraded
or used unsustainably
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Adam Smith’s “invisible hand”
• Adam Smith believed that self-interested behavior could
benefit society
– If laws were followed and markets were competitive
• Classical economics: when people pursue economic
self-interest in a competitive marketplace …
– The market is guided by an “invisible hand” and …
– Society benefits
• This idea is a pillar of free-market thought today
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Neoclassical economics includes
psychology
• Neoclassical economics examines the psychological
factors that underlie consumer choices
• Market prices reflect consumer preference
– Supply vs. demand
• Conflict between buyers
and sellers leads to ….
– Production of the
“right” quantities
of a product
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Cost-benefit analysis: evaluating decisions
• Cost-benefit analysis: costs of a proposed action are
compared to benefits that result from the action
– If benefits > costs: pursue the action
• But not all costs and benefits can be easily identified,
defined, or quantified
– It is easy to quantify the cost of pollution-reducing
equipment or jobs created by an activity
– But hard to assess the effects of pollution on health
• Monetary benefits are overrepresented
– Analysis is biased in favor of economic development
– Biased against environmental protection
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Neoclassical economics hurts the
environment
• Capitalist market systems operate according to
neoclassical economics
– Enormous material wealth has been created
• Assumptions of neoclassical economics contribute to
environmental degradation:
– Resources are infinite or substitutable
– We should discount the future
– All costs and benefits are internal
– All growth is good
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Assumption: resources are infinite
• Economic models treat resources and workers as infinite,
substitutable, and interchangeable
– Once used up, a replacement resource will be found
• Some resources can be replaced but some cannot
– Nonrenewable resources (fossil fuels) can be depleted
– Renewable resources (forests) can also be used up
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Assumption: discount long-term effects
• A future event has less value than a present one
• Future events are discounted:
– Short-term costs and benefits are more important than
long-term costs and benefits
– Present conditions are more important than future ones
• We ignore the long-term consequences of policy
decisions
• Environmental problems unfold gradually
– Discounting causes us to downplay environmental impacts
of pollution and resource degradation
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Assumption: costs and benefits are internal
• Only the buyer and seller experience costs and benefits
associated with exchanging goods or services
– Pricing ignores social, environmental, or economic costs of
pollution and degradation
– Taxpayers bear the burden of paying these costs
• External costs: affect people other than buyers or sellers
– Health problems, resource depletion, property damage
• Ignoring external costs creates a false impression of the
consequences of choices
• Laws and regulations address external costs
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People suffer from external costs
People who do not participate in a transaction suffer from
external costs (health problems, property and aesthetic
damage, stress, lower real estate values)
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Assumption: all growth is good
• Economic growth is needed to keep jobs and social order
– It creates opportunities for poor to become wealthier
– Progress is measured by economic growth
• But economic growth does not ensure well-being
– Affluenza: material goods do not always bring contentment
to those who can afford them
• Runaway growth can destroy our economic system
– Resources are ultimately limited
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We live in a growth-oriented economy
• Modern global economic growth is unprecedented
– Americans are in a frenzy of consumption
• Economic growth comes from:
– Increased inputs (labor, natural resources)
– Economic development: improved efficiency of production
(technology, ideas, equipment)
• Uncontrolled economic growth is unsustainable
– Technology can push back limits, but not forever
– Resources are finite or have limited rates of extraction
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Is the growth paradigm good for us?
The dramatic rise in per-person consumption has severe
environmental consequences
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Ecological economics
• Ecological economics: civilizations cannot overcome
environmental limitations
– Uses principles of ecology and systems science
– Natural systems are models for sustainability
– Calls for revolution
• Ecological economists advocate steady-state economies:
– Economies that mirror natural ecological systems
– They don’t grow nor shrink but stay stable
• Quality of life increases through technological and
behavioral changes
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Environmental economics
• Environmental economics: unsustainable economies
have high population growth and inefficient resource use
– We can attain sustainability within current economic
systems
– Calls for reform
• Economies grow by modifying neoclassical economics to
increase efficiency through technology
• Environmental economists assign monetary values to
ecosystem goods and services
– Integrating them into traditional cost-benefit analysis
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Valuing ecosystem goods and services
• The market ignores/undervalues ecosystem services
• Nonmarket values: values (e.g., ecological, cultural,
spiritual) not included in the price of a good or service
– Hard to quantify, since
there is no traditional
measure of economic
worth
Natural cycles are vital
to our existence but
markets impose no
penalties when we
disturb them
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How do we quantify an ecosystem’s
value?
• Surveys determine how much people are willing to pay to
protect or restore a resource
• Measure the money, time, or effort expended to travel to
parks for recreation
• Compare housing prices in different areas to infer the
dollar value of landscapes, views, and peace and quiet
• Measure the cost to restore natural systems, replace
systems with technology, or reduce harm from pollution
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The global value of ecosystem services
• The global economic value of 17 ecosystem services
equals $46 trillion
– More than the GDP
of all nations
combined
Protecting land gives
100 times more value
than converting it to
agriculture, logging, or
fish farming
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Businesses are responding to concerns
• Industries, businesses, and corporations make money by
“greening” their operations
• Recycling, cutting energy use, etc., reduces costs, and
increases profits
• Greenwashing: consumers
are misled into thinking
companies are acting more
sustainably than they are
– Example: “Pure” bottled
water may not be
safer or better
People must support
sustainable economics
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Markets can fail
• Market failure occurs when markets ignore:
– The environment’s positive impacts on economies
(ecosystem services)
– The negative effects of activities on the environment or
people (external costs)
• Government intervention counters market failure through:
– Laws and regulations
– Taxing harmful activities
– Designing economic incentives to promote fairness,
conservation, and sustainability
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Environmental policy
• Once society agrees that a problem exists, it may
persuade its leaders to solve it through policy
• Policy: a formal set of general plans and principles to
address problems and guide decision making
• Public policy: governmental laws, regulations, orders,
incentives, and practices to advance societal welfare
• Environmental policy: pertains to human interactions
with the environment
– Regulates resource use or reduces pollution
– To promote human welfare and/or protect resources
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Policy impacts environmental problems
• Science, ethics, and economics help formulate policy
– Science: provides information and analysis
– Ethics and economics: clarify how society can address
problems
• Government
interacts with
– Citizens,
organizations,
and the private
sector
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Policies prevent the tragedy of the commons
• Capitalist markets are driven by short-term profit
– Not long-term social or environmental stability
– Little incentive to minimize impacts
– Market failure justifies government intervention
• Environmental policy tries to protect environmental
quality and natural resources
– While promoting equity or fairness in resource use
• Tragedy of the commons: commonly held resources
will become overused and degraded
– Best prevented by restriction of use and management
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Environmental policies prevent free riders
and external costs
• Free riders: people are tempted to cheat and not
participate in sacrificing to protect the environment
– An entity gets a “free ride” by avoiding sacrifices made by
others
– Private voluntary efforts are less effective than public
policies, where everyone sacrifices
• Environmental policies also promote fairness by
eliminating external costs
– Policies ensure that parties do not use resources in ways
that harm others
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Framework of U.S. environmental policy
• The U.S. is a good model to understand environmental
policy
– It has pioneered innovative policies
– Its policies serve as models for other countries
– Understanding federal policy helps us understand it at
local, state, and international levels
• Congress passes legislation (statutory law)
– It is signed into law by the president
• Laws are implemented and executed by agencies
– Regulations: specific rules to achieve objectives of
broadly written statutory laws
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State and local governmental policies
• The structure of the federal government is mirrored at
the state level
• But state laws cannot violate principles of the U.S.
Constitution
– If laws conflict, federal laws take precedence
• California, New York, New Jersey, and Massachusetts
have strong environmental laws
– Well-funded agencies
– Citizens value protecting the environment
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Early U.S. environmental policy
• From 1780s to the late 1800s, laws promoted settlement
and extraction of resources
• General Land Ordinances of 1785 and 1787:
encouraged people to move west
– The federal government managed unsettled lands
– Surveying and readying them for sale
• Settlement increased prosperity for citizens
– Relieved crowding in eastern cities
– Displaced millions of Native Americans
• People believed the land was infinite and inexhaustible
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Typical laws from the 1780s to late 1800s
• Homestead Act (1862): anyone could buy or settle on
160 acres of public land
Insert Fig. 5.10a
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Typical laws from the 1780s to late 1800s
• General Mining Act
(1872): people could mine
on public land for $5/acre
with no government
oversight
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Typical laws from the 1780s to late 1800s
• Timber Culture Act (1873): encouraged the timber
industry to clear-cut ancient trees with little
government policy to limit logging or encourage
conservation
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The second wave of U.S. policy
• Public perception and government policy shifted
– Laws addressed problems caused by westward expansion
and encouraged conservation
• Congress created Yellowstone National Park, the
world’s first national park, in 1872
– Also, national parks, forests, and wildlife refuges
• Understood that the nation’s resources were exhaustible
– They required legal protection
• Land management policies addressed soil conservation
• The 1964 Wilderness Act preserves pristine land
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The third wave of U.S. environmental policy
• In the 20th century, people were better off economically
– But lived with dirtier air, dirtier water, and more waste
and toxic chemicals
• Events increased awareness
of environmental problems
and shifted public priorities
and policies
Rachel Carson’s Silent Spring
(1962) described the ecological
and health effects of pesticides
and chemicals
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Modern U.S. environmental policy
• Ohio’s Cuyahoga River was so polluted that it caught
fire in the 1950s and 1960s
– The public demanded more environmental protection
Today, U.S. health is better protected and the air and
water are cleaner mainly because of policies of the 1960s
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The National Environmental Policy Act (1970)
• NEPA began the modern era of environmental policy
– It created the Council on Environmental Quality
• Requires an Environmental Impact Statement (EIS)
– For any federal action that might significantly impact
the environment
– To assess the environmental impacts of any federallyfunded project
• An EIS usually does not halt projects
– Provides incentives to decrease damage
– Grants citizens input into the policy process
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The EPA shifts environmental policy
• In 1970, President Nixon’s executive order created the
Environmental Protection Agency (EPA)
– To develop an integrated approach to environmental
policy
• The EPA:
–
–
–
–
–
Conducts and evaluates research
Monitors environmental quality
Sets and enforces standards for pollution levels
Assists states in meeting standards and goals
Educates the public
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Significant environmental laws
• The public demanded a
cleaner environment
– Environmental
problems needed
tough regulations
Thousands of laws protect
health and environmental
quality in the U.S.
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Environmental policy changes over time
• Major advances in environmental policy in the 1960s
and 1970s occurred because:
– Strong evidence of environmental problems existed
– People could visualize policies to deal with problems
– The political climate was ripe, with a supportive public
and leaders who were willing to act
• Pictures of Earth from space made us aware that our
planet was finite
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Many reacted against regulation
• By 1990, many felt that regulations were too strict
– Imposed economic burdens on people and businesses
• George W. Bush and the Republican-controlled
Congresses (1994–2006) tried to weaken laws
• “The Death of Environmentalism” (2004): the
environmental movement has to be reinvented
– It must appeal to core values with an inspiring vision
• This new outlook helped elect President Obama in 2008
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Current environmental policy
• Other nations have increased attention to issues
– The 1992 Earth Summit in Rio de Janeiro, Brazil
– The 2002 World Summit on Sustainable Development in
Johannesburg, South Africa
• This wave of policy focuses
on sustainability
– Safeguarding ecosystems
while raising living
standards
Climate change dominates
discussion on
environmental policy
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International environmental policy
• International law is vital to solving transboundary issues
• Customary law: international law arising from longstanding practices or customs held by most cultures
• Conventional law: arises from conventions or treaties
– Montreal Protocol (1987): 160 nations agreed to reduce
ozone-depleting chemicals
– Kyoto Protocol: reduces greenhouse gas emissions causing
climate change
• North American Free Trade Agreement (NAFTA):
– Addresses U.S.–Mexico issues
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Organizations shape international policy
• International organizations influence nations through:
– Funding, economic or political pressure, and media
attention
• United Nations (UN): plays an active role in policy
– Sponsors conferences, coordinates treaties, publishes
research
• UNEP (United Nations Environment Programme)
promotes sustainability
– Research, outreach activities
– Provides information to policymakers and scientists
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The World Bank and European Union
• The World Bank: one of the largest funding sources
for economic development in poor countries
– Dams, irrigation, infrastructure, etc.
– Funds unsustainable, environmentally damaging
projects
• The European Union (EU) seeks to promote
Europe’s unity and its economic and social progress
– Can sign binding treaties and enact regulations
– Sees environmental regulations as barriers to trade
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The World Trade Organization (WTO)
• Represents multinational corporations
– Promotes free trade
• Can impose penalties on nations that don’t comply with
its directives
• Interprets environmental laws as unfair barriers to trade
– Brazil and Venezuela filed a complaint against U.S.
regulations requiring cleaner-burning fuel
– The WTO agreed with Brazil and Venezuela, despite
threats to human health
• Critics charge the WTO aggravates environmental
problems
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International treaties can weaken protection
• International treaties allow industries and corporations to
weaken environmental protection laws
– They see laws as barriers to trade
• Under NAFTA, investors can sue a country for lost
profits
– Canada sued the U.S. for $300 million for banning beef
after finding mad cow disease in Canada cows
– Canada sued the U.S. for $1 billion for banning MTBE, a
dangerous gasoline additive
– The U.S. forced Mexico to pay $16 million and reopen a
toxic waste dump
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NGOs
• Nongovernmental organizations (NGOs): entities
that influence international policy
• Some do not get politically involved
– Example: The Nature Conservancy
• Others try to shape policy through research, education,
lobbying, or protest
– Example: Conservation International, the World Wide
Fund for Nature, Greenpeace, Population Connection
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Seven steps to making environmental policy
• Theoretically, in the U.S.,
everyone has a voice and
can make a difference
– But money wields influence
– Some people and organizations
are more influential than others
• Creating environmental
policy has several steps
– Requires initiative,
dedication, and the
support of many people
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Step 1: Identify a problem
• Requires scientific inquiry and data collection
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Step 2: Pinpoint causes of the problem
• Involves scientific research
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Step 3: Envision a solution
• Science plays a vital role here, too
• Solutions also require social or political action
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Step 4: Get organized
• Organizations are more effective than individuals
– But a motivated, informed individual can also succeed
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Step 5: Cultivate access and influence
• People gain access to policymakers and influence them
through lobbying and campaign contributions
– Professional lobbyists are employed by businesses
and organizations
– Anyone can donate money to a candidate
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Step 6: Shepherd the solution into law
• Prepare a bill, or draft law, containing solutions
• Find members of the House and Senate to introduce the
bill and shepherd it through committees
• The bill may become law or die in various ways
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How a bill becomes law
Before a bill becomes law, it
must clear multiple hurdles
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Step 7: Implement, assess, and interpret
policy
• Following a law’s enactment
– Administrative agencies implement regulations
– Policymakers evaluate the policy’s successes or failures
– The courts interpret the law
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Science plays a role, but can be politicized
• A nation’s strength depends on proper use of science
– Governments use some tax money to fund research
• Sometimes policymakers let ideology determine policy
– Politicians ignore scientists and mislead the public
– Government scientists have had their work censored,
suppressed, or edited and their jobs threatened
– Unqualified people are put into powerful positions
• Scientifically literate citizens must ensure that our
government uses proper use of science
When taxpayer-funded research is suppressed or distorted
for political ends, everyone loses
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Three major types of policy approaches
• Environmental policy has 3
major approaches:
– Lawsuits
– Command-and-control
– Economic policy tools
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Strategy: lawsuits in the courts
• Before legislation, lawsuits addressed U.S. policy issues
– Individuals suffering from pollution sued polluters in court
– Courts make polluters stop or pay fines
• Industrialization and population growth made it harder to
control pollution
– Also, justices were reluctant to hinder industry
• People saw legislation and regulation as more effective in
protecting health and safety
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Strategy: command and control
• Command-and-control approach: a regulating agency
prohibits actions, or sets rules or limits
– Threatening punishment for violators
• This is the approach used for most environmental laws
and regulations enforced by agencies today
• This simple approach has worked well
– It brings cleaner air, water, safer workplaces, and
healthier neighborhoods
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Strategy: economic policy tools
• People don’t like the top-down approaches that dictate
particular solutions to problems
• Alternative approaches channel innovation and economic
policies to benefit the public:
– Promote desired, and discourage undesired, outcomes
– Encourage market competition to produce new solutions at
lower cost
• Strategies include:
– Green taxes, subsidies, permit trading, and ecolabeling
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Green taxes discourage unsustainability
• Governments use taxes to benefit the public
– Internalizing harmful external costs makes them part of the
cost of doing business
• Green taxes: tax environmentally harmful activities and
products
– Businesses reimburse the public for damage they cause
– The more pollution, the higher the tax payment
• Companies have financial incentives to reduce pollution
with freedom to decide how to do so
– But costs are passed on to consumers
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Who should pay for pollution?
• Green taxes are not widely supported in the U.S.
– Other “sin taxes” (e.g., on cigarettes and alcohol) are tools
of U.S. social policy
• Polluter-pays principle: the party that pollutes is held
responsible for covering the costs of its impacts
– Widely used in Europe
• Carbon taxes: controversial taxes on gasoline, coal-based
electricity, and other fossil fuels
– Used to fight climate change
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Subsidies promote certain activities
• Subsidy: a government giveaway of cash or resources to
encourage a particular industry or activity
– Tax break: helps an entity by relieving its tax burden
• Subsidies can promote sustainability, but they have been
used to support unsustainable activities
• The U.S. subsidizes logging, grazing, and mining
– Benefits private parties while degrading publically held
resources
• Nations give $1.45 trillion per year in harmful subsidies
U.S. fossil fuel companies received $72 billion taxpayer
money (2002–2008)—renewable energy received $29 billion
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Permit trading saves money
• Permit trading: a government-created market in
permits for an environmentally harmful activity
– Businesses buy, sell, or trade these permits
• Cap-and-trade emissions trading system: the
government sets pollution levels (“caps”)
– Permits let polluters emit some amount of pollution
• Polluters can exchange (sell) permits
– The government can set lower emission levels
• Companies have an economic incentive to reduce
emissions
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A cap-and-trade system for air pollution
• One U.S. cap-and-trade system decreased sulfur dioxide
emissions
• Cuts were obtained more
cheaply than expected
– With no effects on
electricity supply or
economic growth
• Billions of dollars
per year are saved
– Benefits outweigh costs
40 to 1
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Ecolabeling empowers consumers
• Uses the marketplace to counteract market failures
• Ecolabeling: tells consumers which brands use
environmentally benign processes
– Dolphin-safe tuna,
labeling recycled
paper, etc.
Ecolabeling is a
powerful incentive for
businesses to change
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Market incentives work at the local level
• Municipalities charge residents for waste disposal
– According to the amount of waste generated
• Cities tax disposal of costly items (tires, motor oil)
• Some cities give rebates for buying water-efficient
appliances
• Power utilities give discounts to those buying efficient
lightbulbs and appliances
– It is cheaper than expanding generating capacity
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Conclusion
• Environmental policy is a problem-solving tool
– It uses science, ethics, and economics
• Conventional command-and-control approach uses
legislation and regulations to make policy
– It is the most common approach
– Innovative economic policy tools are being developed
• Environmental and ecological economists quantify the
value of ecosystem services
• Economic well-being does not need a trade-off with
environmental quality
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