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Chapter 24
Economics,
Environment, and
Sustainability
Chapter Overview Questions
 What
are economic systems and how do they
work?
 How do economists differ in their views of
economic systems, pollution control, and
resource management?
 How can we monitor economic environmental
progress?
 What economic tools can we use to improve
environmental quality?
Chapter Overview Questions (cont’d)
 How
does poverty reduce environmental
quality, and how can we reduce poverty?
 How can we shift to more environmentally
sustainable economies over the next few
decades?
Updates Online
The latest references for topics covered in this section can be found at
the book companion website. Log in to the book’s e-resources page at
www.thomsonedu.com to access InfoTrac articles.






InfoTrac: Is buying local always best? The Christian Science
Monitor, July 24, 2006 p13.
InfoTrac: A corporate solution to global poverty. George C. Lodge;
Craig Wilson. The Chronicle of Higher Education, May 12, 2006
v52 i36 pB14(1).
InfoTrac: No bar code: the next revolution in food is just around
the corner. Michael Pollan. Mother Jones, May-June 2006 v31 i3
p36(10).
The Environmental Magazine: Sharing the Wealth.
Global Policy Forum: Meet the Losers of Globalization
The Brookings Institution: Waging a Living
Video: The Working Poor
 This
video clip is available in CNN Today
Videos for Environmental Science, 2004,
Volume VII. Instructors, contact your local
sales representative to order this volume,
while supplies last.
Core Case Study: A New Economic
and Environmental Vision
 Some
components
of more
environmentally
sustainable
economic
development.
Figure 24-1
Production of energyefficient fuel-cell cars
Forest
Underground CO2 storage
conservation
using abandoned oil wells
No-till
cultivation
High-speed trains
Deep-sea CO2
storage
Solar-cell
fields
Bicycling
Wind farms
Communities
of passive
solar homes
Recycling
plant
Water
conservation
Landfill
Cluster
housing
development
Recycling, reuse, &
composting
Fig. 24-1, p. 569
ECONOMIC SYSTEMS AND
SUSTAINABILITY
 An
economic system produces and
distributes goods and services by using
natural, human, and manufactured resources.
 In a pure free-market system, buyers and
sellers interact without any government or
other interference.

Actual capitalist market systems deviate from this
model.
Economic Resources: The Big Three
 Three
types of resources are used to produce
goods and services.
Figure 24-2
Natural
Resources
Manufactured
Resources
+
Human
Resources
+
Goods and
Services
=
Fig. 24-2, p. 570
Market Economic Systems: Pure Free
Market and Capitalistic Models
 Supply,
demand,
and market
equilibrium for a
good or service in
a pure market
system.
Figure 24-3
OIL
Price (low to high)
Quantity
demanded
Quantity
supplied
Surplus
If the price is too
high, more of a
good is available
than buyers are
willing to buy.
At this market equilibrium
price, the quantity of a good
suppliers are willing to sell is
the same as the quantity
buyers are willing to buy.
If the price is too low,
buyers want to buy
more than suppliers
are willing to sell.
0
Quantity
supplied
Shortage
Quantity
demanded
Quantity
Fig. 24-3, p. 571
Government Intervention in Market
Economic Systems:
Correcting Market Failures
 Governments
intervene in market systems to
help provide economic stability, national
security, and public services such as
education, crime protection, and
environmental protection.
Environmentally Sustainable
Economic Development:
Copying Nature
 Models
of ecological economists are built on
the following assumptions:



Resources are limited.
Encourage environmentally beneficial and
sustainable forms of development.
The harmful environmental and health effects of
producing goods and services should be included
in market prices.
Sun
Natural Capital
Air, water, land, soil,
biodiversity,
minerals, raw
materials, energy
resources; dilution,
decomposition, &
recycling services
EARTH
Economic
Systems
Heat
Production
Depletion of nonrenewable
resources
Degradation & depletion
of renewable resources used
faster than replenished
Consumption
Pollution, waste from
overloading nature’s waste
disposal & recycling systems
Recycling
and reuse
Fig. 24-4, p. 573
Economic Development
 Comparison
of
unsustainable
economic
development
and
environmentally
sustainable
economic
development.
Figure 24-5
Characteristic
Unsustainable
Economic Growth
Environmentally
Sustainable
Economic
Development
Production
emphasis
Quantity
Quality
Natural resources
Not very important
Very important
Resource
productivity
Inefficient (high
waste)
Efficient
(low waste)
Resource
throughput
High
Low
Resource type
emphasized
Nonrenewable
Renewable
Resource fate
Matter
discarded
Matter recycled,
reused, or
composted
Pollution control
Cleanup (output
reduction)
Prevention (input
reduction)
Guiding principles
Risk–benefit
analysis
Prevention and
precaution
Fig. 24-5, p. 573
ESTIMATING THE VALUE OF
ECOLOGICAL SERVICES AND
MONITORING ENVIRONMENTAL
PROGRESS
 Economists
have developed several ways to
estimate nonmarket values of the earth’s
ecological services based using:


Mitigation cost: how much it takes to offset any
environmental damage.
Willingness to pay: determine how much people
are willing to pay to keep the environment in tact
(e.g. protect an endangered species).
ESTIMATING THE VALUE OF
ECOLOGICAL SERVICES AND
MONITORING ENVIRONMENTAL
PROGRESS
 Economists
use discount rates (estimate
resource’s future value compared to current)
to estimate the future value of a resource.
 The market price you pay for something does
not include most of the environmental, health,
and other harmful costs associated with its
production and use.
Estimating the Optimum Levels of
Pollution Control and Resource Use
 Environmental
economists try to
determine optimum
levels of pollution
control and resource
use.
Figure 24-6
Cost
High
Marginal
cost of
resource
use
Marginal
cost of
resource
production
Optimum level of
resource use
Low
Coal removed (%)
Fig. 24-6, p. 575
Optimum Pollution Control
 The
marginal cost of cleaning up pollution
rises with each additional unit removed.
Figure 24-7
High
Cost
Marginal
cost of
pollution
Marginal
cost of
pollution
control
Optimum pollution
clean-up level
Low
Pollution removed (%)
Fig. 24-7, p. 576
Cost-Benefit Analysis:
a Useful but Crude Tool
 Comparing
likely costs and benefits of an
environmental action is useful but involves
many uncertainties.

Cost–benefit analyses involves determining:
• Who or what might be affected by a particular
regulation or project.
• Projecting potential outcomes.
• Evaluating alternative actions.
• Establishing who benefits and who is harmed.
Environmental and Economic
Indicators: Environmental Radar
 We
need indicators that reflect changing
levels of environmental quality and human
health.


Gross domestic product (GDP): measures the
annual economic value of all goods and services
produced in a country without taking harmful
effects into consideration.
Genuine progress indicator (GPI): Subtracts
from the GDP costs that lead to a lower quality of
life or deplete / degrade natural resources.
Environmental and Economic
Indicators: Environmental Radar
 Comparison
of
the per capita
GDP and the
GPI in the U.S.
between 1950
and 2002.
Figure 24-8
1996 Dollars per person
Per capita genuine progress indicator (GPI)
Year
Fig. 24-8, p. 577
How Would You Vote?
To conduct an instant in-class survey using a classroom response
system, access “JoinIn Clicker Content” from the PowerLecture main
menu for Living in the Environment.
 Should
full-cost pricing be used in setting
market prices for goods and services?


a. No. Low-income people will not be able to
afford some essential goods and services.
b. Yes. Full-cost pricing will improve
environmental protection.
ECONOMIC TOOLS FOR
IMPROVING ENVIRONMENTAL
QUALITY
 Including
external costs in market prices
informs consumers about the harmful impact
of their purchases the earth’s life-support
systems and on human health.
Eco-Labeling: Informing Consumers
So They can Vote with Their Wallets
 Certifying
and labeling environmentally
beneficial goods and resources extracted by
more sustainable methods can help
consumers decide what goods and services
to buy.
Figure 24-9
Germany:
Blue Angel
(1978)
European
Union:
Eco-label
(1992)
United States:
Green Seal
(1989)
Canada:
Environmental
Choice (1988)
Nordic
Council:
White Swan
(1989)
China:
Environmental
label (1993)
Fig. 24-9, p. 579
Subsidy Shifting
 Taxes
on pollution and resource use can
move us closer to full-costing pricing.

Shifting taxes from wages and profits to pollution
and waste (green taxes) helps make this
feasible.
 We
can improve environmental quality and
human health by replacing environmentally
harmful government subsidies with
environmentally beneficial ones.
Trade-Offs
Environmental Taxes and Fees
Advantages
Helps bring about full-cost pricing
Provides incentive for
businesses to do better to
save money
Can change behavior of
polluters and consumers if
taxes & fees are set at a high
enough level
Easily administered by existing tax
agencies
Disadvantages
Penalizes low income groups
unless safety nets are provided
Hard to determine optimal level
for taxes and fees
Need to frequently readjust levels,
which is technically and politically
difficult
Gov’ts may see this as a way of
increasing general revenue instead of
using funds to improve environmental
quality and reduce taxes on income,
payroll, & profits
Fairly easy to detect cheaters
Fig. 24-10, p. 580
How Would You Vote?
To conduct an instant in-class survey using a classroom response
system, access “JoinIn Clicker Content” from the PowerLecture main
menu for Living in the Environment.
 Do
the advantages of green taxes and fees
outweigh the disadvantages?


a. No. Low-income people, farmers, ranchers,
and small businesses would suffer from
environmental taxes and fees.
b. Yes. They would reduce waste and protect the
environment.
Green Taxes
 Advantages
of
taxing wages
and profits less
and pollution
and waste
more.
Figure 24-11
• Decreases depletion and degradation of
natural resources
• Improves environmental quality
by full-cost pricing
• Encourages pollution
prevention & waste reduction
• Stimulates creativity in solving
environmental problems to avoid
paying pollution taxes and
thereby increases profits
• Rewards recycling and reuse
• Relies more on marketplace
rather than regulation for
environmental protection
• Provides jobs
• Can stimulate sustainable
economic development
• Allows cuts in income, payroll, and sales taxes
Fig. 24-11, p. 581
How Would You Vote?
To conduct an instant in-class survey using a classroom response
system, access “JoinIn Clicker Content” from the PowerLecture main
menu for Living in the Environment.

Do you favor shifting taxes on wages and profits to pollution and waste?



a. No. This tax system would penalize many farmers, ranchers, and
businesses that cannot avoid generating waste.
b. Yes. But, only if we offer subsidies to assist lower income people in
meeting their basic needs.
c. Yes. It would promote a cleaner environment.
ECONOMIC TOOLS FOR
IMPROVING ENVIRONMENTAL
QUALITY
 Environmental
laws and regulations work
best if they motivate companies to find
innovative ways to control and prevent
pollution and reduce resource waste.
 Governments can set a limit on pollution
emissions or use of a resource, give permits
to users, and allow them to trade their
permits on the marketplace.
Trade-Offs
Tradable Environmental Permits
Advantages
Disadvantages
Flexible
Big polluters and resource wasters can
buy their way out
Easy to administer
May not reduce pollution at dirtiest plants
Encourages pollution prevention
and waste reduction
Can promote achievement of caps
Can exclude small companies from buying
permits
Caps can be too low
Caps must be gradually reduced to
encourage innovation
Determining caps is difficult
Permit prices determined by market
transactions
Confronts ethical problem of how much
pollution or resource waste is
acceptable
Confronts problem of how permits
should be fairly distributed
Must decide who gets permits and why
Administrative costs high with many
participants
Emissions and resource wastes must
be monitored
Self-monitoring can promote cheating
Sets bad example by selling legal rights to
pollute or waste resources Fig. 24-12, p. 582
How Would You Vote?
To conduct an instant in-class survey using a classroom response
system, access “JoinIn Clicker Content” from the PowerLecture main
menu for Living in the Environment.

Do the advantages of using tradable pollution and resource-use permits
to reduce pollution and resource waste outweigh the disadvantages?


a. No. The policies would allow old and dirty plants to continue polluting local
air and water.
b. Yes. The policies are effective ways of capping and then reducing air and
water pollution and resource use.
Green Economics: Selling Services
Instead of Things
 Some
businesses can greatly decrease their
resource use, pollution, and waste by shifting
from selling goods and services to selling the
services the goods provide.

Carrier has begun shifting selling heating and air
conditioning equipment to providing the service
itself.
• It makes higher profits by having the most energyefficient units.
REDUCING POVERTY TO IMPROVE
ENVIRONMENTAL QUALITY AND
HUMAN
WELL-BEING
 We
can sharply cut poverty by forgiving the
international debts of the poorest countries,
greatly increasing international aid and small
individual loans to help the poor help
themselves.
Distribution of the World’s Wealth: a
Widening Gap
 The
global
distribution of
income shows
that most of the
world’s income
flows up.

Each horizontal band is 1/5th
of the world’s population
Figure 24-13
Richest fifth
85%
Poorest fifth
1.3%
Fig. 24-13, p. 584
Solutions: Achieving the Millennium
Development Goals
 In
2000, the world’s nations set goals for
sharply reducing hunger and poverty,
improving health care and moving toward
environmental sustainability by 2015.

In 1980 and 2002, developed countries agreed to
devote 0.7% of their annual national income
towards achieving such goals.
• The average amount donated was 0.25%.
• The U.S. gives 0.16%.
Fig. 24-14, p. 586
Expenditures per year (2005)
$1
trillion
World military
$492 billion
(including Iraq)
U.S. military
$29 billion
U.S. highways
U.S. potato
chips & snacks
$22 billion
$19 billion
U.S. pet foods
U.S. EPA
U.S. foreign aid
U.S. cosmetics
$8 billion
$8 billion
$8 billion
Fig. 24-14a, p. 586
Expenditures per year needed to
Eliminate hunger & malnutrition
$48 billion
Provide clean drinking water
and sewage treatment for all
$37 billion
$33 billion
Provide basic health care for all
$31 billion
Protect biodiversity
$24 billion
Protect topsoil on cropland
Provide universal primary
education and end illiteracy
Restore fisheries
$16 billion
$13 billion
Deal with global HIV/AIDS
$10 billion
Stabilize water tables
$10 billion
Restore rangelands
$9 billion
Protect tropical forests
$8 billion
Reforest the earth
$6 billion
Total Earth Restoration and Social Budget = $245 billion
Fig. 24-14b, p. 586
MAKING THE TRANSITION TO
MORE ENVIRONMENTALLY
SUSTAINABLE ECONOMIES
 Nature's
four principles of sustainability and a
number of environmental and economic
strategies can be used to develop more
environmentally sustainable economies.
 The Netherlands has dedicated itself to
making its economy more environmentally
sustainable.
Eco-Economies
 Principles
for
shifting to more
environmentally
sustainable
economies
during this
century.
Figure 24-15
Economics
Reward (subsidize) earth
sustaining behavior
Penalize (tax and do
not subsidize) earth
degrading behavior
Shift taxes from wages
and profits to pollution
and waste
Use full-cost pricing
Sell more services
instead of more things
Do not deplete or degrade
natural capital
Live off income from
natural capital
Reduce poverty
Use environmental
indicators to measure
progress
Certify sustainable
practices and products
Use eco-labels on
products
Environmentally
Sustainable
Economy (EcoEconomy)
Resource Use &
Pollution
Reduce resource use
and waste by refusing,
reducing, reusing, and
recycling
Improve energy
efficiency
Rely more on renewable
solar and geothermal
energy
Shift from a carbonbased (fossil fuel)
economy to a
renewable fuel–based
economy
Ecology &
Population
Mimic nature
Preserve biodiversity
Repair ecological
damage
Stabilize population by
reducing fertility
Fig. 24-15, p. 587
Jobs, Profits, and
the Environment:
New Industries
and New Jobs
 Shifting
to more
environmentally
sustainable
economies will
create immense
profits and huge
numbers of jobs.
Figure 24-16
Environmentally Sustainable
Businesses and Careers
Aquaculture
Biodiversity protection
Environmental law
Environmental nanotechnology
Fuel cell technology
Biofuels
Geographic information systems (GIS)
Climate change research
Geothermal geologist
Conservation biology
Hydrogen energy
Eco-industrial design
Marine science
Pollution prevention
Ecotourism management
Reconciliation ecology
Energy efficient product design
Selling services in place of products
Environmental chemistry
Solar cell technology
Environmental design
Sustainable agriculture
Environmental economics
Sustainable forestry
Waste reduction
Environmental education
Watershed hydrologist
Environmental engineering
Water conservation
Environmental health
Wind energy
Fig. 24-16, p. 589