More on the Environment

 

Common resource

Market for pollution permits

Equity

Primary products

Terms of trade

Perverse subsidies

Ecosystem/industrial symbiosis

 

So far we have discussed what theoretical economics has to say about the relationship btw economics and the environment.  Economists generally argue that:

in cases where elimination of a problem is required, an outright ban may be needed.

Ex: DDT, banning fishing or hunting in the case of endangered species.

 

More generally, some pollution is inevitable, although it can be discouraged through taxation.

The creation of a market for pollution permits can be used to increase efficiency. Firms that can easily reduce their pollution production will do so, while firms that cannot will purchase pollution permits.

Ex: Cigarette tax, permits for air pollution

 

Today’s UN article raises a number of issues concerning the link between income distribution and the environment, as well as raising concerns about equity.

The article on Denmark points out that societies can work to solve some environmental problems.

 

What is the link between income distribution (wealth and poverty) and the environment?

 

Both the poor and the rich are likely to negatively impact the environment, but for very different reasons.

The poor exploit the environment because they are poor.

Ex: Poor women may contribute to deforestation.

 

The rich exploit the environment because they are rich.

Ex: SUVs

 

The article also points out that poverty creates a worsening spiral and that globalization may be worsening the situation for many.

Most developing countries export primary products or raw materials.  Because the world demand for such products is not growing very quickly, in order to grow, these countries need to export a larger and larger amount of their primary products.

Ex: wood, rubber, etc.

For a number countries this has meant worsening terms of trade.

Terms of trade describes the relationship between export and import prices. When a country’s terms of trade are worsening, it means that money a country can earn from the goods they export is declining, relative to the money they need to pay for imports.

What is fueling this deforestation – not only poverty but first world wealth. Who can afford to buy the goods these countries are producing – US  and European consumers, as well as the elites in the third world.

This in turn leads to problems such as deforestation, not to mention increasing poverty.

 

Not only are the poor more likely to be affected by local environmental  degradation, they are also more likely to be impacted by the kinds of negative externalities with global consequences.
Although it is primarily consumption in the industrialized countries that is causing global warming, the third world is more likely to suffer the consequences.

 

Industrialized countries should be leading the way when it comes to finding solutions to environmental problems for two reasons:

1. they are more able to pay for the necessary R & D

2. their consumption patterns contributes considerably to the problems.

 

The article also points out that there is a gender component to externalities.

Women may be particularly affected by the problems of environmental degradation.

Ex: time spent gathering wood has increased.

 

The UN article thus links the problems of environmental degradation to issues of gender, globalization and income distribution.

 

** In order to solve our environmental problems we also need to address problems of poverty and wealth (under and overconsumption.)

The current economic system, which is worsening income distribution is also having a negative impact on the environment.

 

Waring argues that we need to reject the standard ‘growth’ model.

Another priority is the redistribution of wealth.

 

General efforts to reduce poverty and increase education will have positive externalities since gains in these areas will hopefully also reduce pressure on the environment.

 

What other steps are required?

1. Waring and UN – need to track/monitor environmental conditions (homework problem)

2. encourage R& D that addresses environmental questions

leapfrogging (remember this from the previous UN article we read). Industrial countries can help encourage this by not exporting inappropriate technologies.

3. eliminate ‘perverse subsidies.’

Ex: fishing, logging, water, SUV regulations

 

2 and 3 are linked.  By having perverse subsidies we also are discouraging the right types of R & D.

 

What does the Denmark article add?

 

This article suggests we need to rethink our approach to the environment. Rather than thinking about monitoring and reducing environmental degradation through regulation and taxes, we need to think about the environment in terms of an ecosystem.

 

We need to create incentives so that firms will find ways to become more linked in terms of recycling, etc.

 

It also points out the need for regulation.  Firms will seek out ways to recycle only if it is costly not to do so.

Regulation must be both strong and flexible, so that firms can be creative.

The government and the local community must also play a role in actively pursuing such goals.

 

How does the story we read earlier in the semester fit into the discussion we have been having on the environment?