Economics for Environment- Enriching the Environment
Soaring international temperatures, thanks to the intense debate that revolves around global warming - purportedly the earth’s next disaster flick - make it a particularly contentious task.
Prof.M.Guruprasad / 10:03, Jun 11, 2009
Soaring international temperatures, thanks to the intense debate that revolves around global warming - purportedly the earth’s next disaster flick - make it a particularly contentious task. June 5, World Environment Day, is perhaps a good occasion to sit back and take stock of the state of our environment. There’s just one problem. Soaring international temperatures, thanks to the intense debate that revolves around global warming - purportedly the earth’s next disaster flick - make it a particularly contentious task.
World Environment Day was established by the United Nations General Assembly in 1972 to mark the opening of the Stockholm Conference on the Human Environment. Another resolution, adopted by the General Assembly the same day, led to the creation of UNEP.
The agenda is to give a human face to environmental issues; empower people to become active agents of sustainable and equitable development; promote an understanding that communities are pivotal to changing attitudes towardsenvironmental issues ; and advocate partnership which will ensure all nations and peoples enjoy a safer and more prosperous future. World Environment Day is a people's event with colourful activities such as street rallies, bicycle parades, green concerts, essays and poster competitions in schools, tree planting, as well as recycling and clean-up campaigns.
Natural and man-made environmental resources - fresh water, clean air, forests, grasslands, marine resources, and agro-ecosystems - provide sustenance and a foundation for social and economic development.
Mexico hosts the 2009 World Environment Day on June 5. The theme for 2009 has been chosen by UN Environment Programme as Your Planet Needs You-UNite to Combat Climate Change. It reflects the urgency for nations to agree on a new agreement at the crucial climate convention meeting in Copenhagen later in the year, and the links with overcoming poverty and improved management of forests.
The main reason is that in our society the environment has become a scarce resource. Since economics is about how to tackle scarce resources, it can often be useful when dealing with environmental problems.
One way of using economics is to ensure that the costs and the benefits of environmental measures are well balanced. Although it is difficult to estimate costs and benefits, there is an increasing demand that this is done
The Greek word "oikos," household, is the root of both "economics" and "ecology." It suggests complementarities between these disciplines. Yet economists and ecologists often miss opportunities to work together.
Effects of Economic Activities on Environment
It is a rare day when the newspaper does not cover a topic related to natural resources or the environment. The supply of electricity and water to households, farms and business; disputes between states over water rights; pollution caused by industry and traffic - these problems and many more are of growing concern to numerous and more varied groups of people.
It's a fact! too many people are using too much energy. Not only is this causing an energy crisis, almost every environmental problem-global warming, acid rain, smog, destruction of rain forests, pollution of oceans is occurring because of our tremendous energy consumption. Due to rapid modernization of our society during the past fifty years, energy use has increased dramatically. Controlling the use of energy and reducing its negative impact on our planet is presenting us with a serious problem.
The economy and the environment are well connected. No human activity can be conducted without some connection to the environment, whether the provision of clean water and food or the usage of latest version of a car.
MIT Economist Lester Thurow wrote in The Zero-Sum Society, " Environmentalism is not ethical values pitted against economic values. It is thoroughly economic". The cost of preserving environment is inherently economic as well. Equipment and labor to clean air or water, for example, have an "opportunity" cost; they could be used to produce something else. It is a normative issue in the economics term. Some economists believe that air in much of the country is too dirty because the people who make it dirty do not have the right incentives (disincentives) to make it clean.Environmental problems have often been seen as a form of market failure (Public goods and Externalities).
Globally, as also in India, there is increasing concern about the way in which humanity is pushing other species to extinction. A considerable part of this happens unwittingly.
Economist Kenneth Boulding introduced the concept of a "spaceship economy". As the finite spaceship required the interdependency of the people and systems, within the limits set by the natural system and requires efficiency in our use of resources and care in our use ofthe environment.
There are three components, which are essential towards this goal.
Adopting holistic environmental management framework for related environmental problems and solutions.
Fostering a creative combination of regulation, incentives and penalties to guide consumer, industry and the marketplace.
Research and development initiatives that emphasize the utilization, as well as the development, of energy efficiency and renewable energy technology.
Role
The environment’s first role, then, is as a supplier of resources. Its second is as a sink, or receptor, for waste products. The environment provides the economy with raw materials, which are transformed into consumer products by the production processes, and energy, which fuels this transformation. Ultimately these raw materials and energy return tothe environment as waste products. The environment also provides services directly to consumers. The air we breathe, the nourishment we receive from food and drink, and the protection we derive from shelter and clothing are all benefits we receive directly or indirectly fromthe environment.
Policy Measures
[*]First of all, we must abolish state subsidies stimulating the additional use of natural resources by lowering prices or extraction costs. By doing this, we simultaneously reduce the stress on nature and lower the fiscal burden on public budgets. Today this refers primarily to the fields of energy use, transport, and waste disposal where the state supplies many services to the economy free of charge.
[*]In addition, it will be necessary to eliminate the indirect subsidy caused by the fiscal system that normally places high taxes on labour but exempts energy. One way to remedy this distortion of the relative prices of labour and energy is to finance the systems of social security (old-age pension schemes, unemployment insurances, Health care, etc.) by a tax on energy use instead of financing it by social charges that increase the costs of labour. On the one hand, such an ecological tax reform will lead to higher employment while on the other hand it will reduce energy consumption and thereby its destructive impacts onthe environment. Consequently, the payments for unemployment may be reduced as well as the expenses for end-of-pipe measures in environmental protection. Economy as well as nature would be better off!
[*]Selective direct promotion of renewable energies can make sense if all ecological criteria - including those to protect nature (biodiversity) and landscapes - are considered when assessing which energy types should be promoted. In particular those renewable energy types deserve promotion that are based on dual use of land, i.e. production of thermal or electrical energy in settlement areas or by biogas and timber grown in sustainably used forests. It should, however, be taken into account that long-term subsidies are generally contrary to the market principle. Therefore, the measures should focus on non-financial support by research monitoring, benchmarking, recognition, and eco-labels.
[*]By eliminating ecologically harmful subsidies and introducing an ecological tax reform incentives would be created to exploit cost-saving opportunities that have not been attractive so far. The economy as a whole could be directed by the principles of least-cost-planning. As a result, investments that increase the amount of products with a high intensity in the use of energy and material will be discouraged while investments in goods, which are produced with a constant or even decreasing amount of energy and material input will be encouraged. All this can be achieved with rising profits because profits, which are the difference between earnings and costs, not only can be increased by selling more products but also by reducing input costs. In fact, in a future sustainable economy, we will have to concentrate much more than today on the cost-side of profits, reducing the input of resources and energy.
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The tragedy of the commons
"The Tragedy of the Commons," (by Garrett Hardin, a distinguished ecologist) is the most reprinted article in the magazine’s history.
Hardin noted when a resource is owned in common, there is little incentive for any individual to protect it.
But this happy outcome only occurs when individuals have incentives and means to constrain self-interested, exploitative behavior. The ocean fisheries are an example of predictable failure. Because open oceans are unowned, fishermen lack incentives to conserve fish. Each faces strong incentives to take as many fish as possible lest the benefits of a larger catch go to someone else. Nineteenth-
century whaling, which drove several species to the brink of extinction, is a classic case.
At the 1992 U.N. conference on Environment and Development,Rio,UNCED principle characterized sustainable development as the "right to development must be fulfilled so as to equitably meet developmental needs of present future generations." Infact it further states that "in order to achieve sustainable development, environment protection shall constitute an integral part of the development process and cannot be considered in isolation from it".
Sustainable development, as a model and important environmental theme, is evolving. Sustainable development means economic development and a standard of living which do not impair the future ability of the environment to provide sustenance and life support for the population.
The key question is how to develop economic policy and environmental policy accordingly while maintaining consumer choices and sense of equity within a market economy.
Striking a balance between protection of the environment and sustainable development is an onerous and delicate task. It is primarily at this level that the environmental problems have to be tackled. Political and social change is a part of this and as such has to be incorporated into our society to introduce policies that create conditions where more weight will be given to environmental considerations in economic activities.
Prof.M.Guruprasad
AICAR Business School
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