Environmental economics An elementary introduction 1. Kemy Turer, Dvid Peace and lan Bateman Cn Sci a Exceed Unie a An Uy Cag Ld ‘The Johns Hopkins University Press - Baltimore(© Kary Temer, Dav Pence an an Batman 188, ‘Allg reserved, Published 198. inte iGo rn on a pape csuamom ses 68452 “The Jon Hopkins Unversity Pre ‘alimore, Maryan’ 2236418 ary of Congr Catalog Card Number 861418 ot sod for ths ae vale rahe itary of Congres ‘ae Bah bey. CONTENTS Proce i Introduction 1 Economics and the environment 13, The big economy 15, Environment and ethics 28 Economie growth, population grovalh and the cevironment al Sustainable development St ‘The causes of environmental degradation 63 Hove earkets work and why they fail 65 How governments fai the envionment 79 Decision-making and the environment 91 Coat-enefit thinking 93 Valin concer for nature 108 Coping with wncertainyy 129 ‘The economic control of the environment 141 Using the market to protect the environment 143 ‘Charging forthe ase ofthe envionment 157 Green tes 166 “Trading environmental permits 181Preface ‘evirment, For example, we agre that fequent it simply ent right to ‘rnin this wodand or burn thst vest But the moval argument sony cre “rgument for protesting the environment. We think the economic argent ISeten more power ad expectaly so when, a sequently the ese, the "igh thing by nature conta ofer righ ach asthe right to develop ‘Sconomily andthe night to ave fond ad shor “The carent book hs bee mativated by two actos Fist the immense sucess of several of on previous pubiatons andthe resling all led ws to sel that grt many people simpy ant to kn tnore about envconmental economics On txtook Exams of Natal Ress anf the Evonmen! (Perce and Tres, 190) which has been ‘eprinted numerous fines witha new ean planed sn, 8 for under {gaduste students, not the wider audience. Otber values (uit fr 2 Etcon Econmy by Peuce, Markandy ad Barbier (989) and Blprint TT ‘ited by Perce (99) ave enjoyed 9 sma success, Wheres these were SSmed at a wider audience, they sll did not expan the groundwork of ‘vtenmentl economist eanoae way of thnking, Tat the sim of {his book which i targeted a norspecalit whether they are students or ‘hot Staents ines in econo wl wobbly want to pend more Se ‘Sn the intedctry chapter and soggested reading than the general reader. ‘The later can skin thi chapter as succeeding capers conta more deal and general explanations. ‘Sond, we have bscome deeply conscious that academics spend too itl time enpsining, their subjec.Acilemic professions tend ven on textbooks, eopecilythoue sim 3 the wider suens. We think that view |S Tundamentaly ten and in cntroditon to ene f the very raioales for ocadena eaching, We sept hat in making igs simple many sweats ‘hd complications are losed over. But everyone has to start somewhere and itis best fo get the messgeaoroms Sst and make things complied later on, tather than create xs of contusion al the outset and hope that some people ‘vl vin Cough "We hope you enjoy this book and we welcome your comments. We have toed to explin what often a fel subject a ply 2s pose. We shall ‘be especie oe from readers whofe we have not been ear though end wih, pes themeles, have ways of making things mere ‘imple Nori nd Lando, 1989, INTRODUCTION ‘A very brief economic history lesson “This book's primary objective isto inroduce to general audience the basi onoepts and principles of whet has become known as eironmental “conomic Foal prac! purposes, he origins of envionment economics Ie inthe 1960 atthe ume of the fst wave of modern popular “een! thinking and poly pereptions within developed counties, known 36 fenvironmentatiem (O'Riordan, 189). This otto say, of couse that the foundavons of enviromental economics appeared demo ding the 1960s Wie branch of economics an shares wih ite parent despline common, istry. Some of the fundamental eas that provide a famevesk oe ‘vironmental esonomis go back at let ote eghtoentscenry "A minonty of eitzens hve aay worded about the state of, and te of use the natal environment whether eal, atonal or itematonaly ‘So hove val ben ignore by thi contemporaries, ut elements of hele Iessage may be more relevant faday then evr below, While semingly obvious, eof crcl importance for an understanding ‘of eavirnetal economy, that we recgaive tht our econ system (ich provides wx witha the material goods and services nevessry for 3 “mode standard of ving) 5 underpinned by and cannot operate witout the support of ecological aystems of pnts and animals and hee interel Hnshipe collecvely known ste brosphee, and twice sare “Thus environmental econ views the real economy in which we al Bee and work ay am open system. What this means tha orer to function fie, provide goats and serves or wealth for i human operators) the ‘sndmy this etact sources (a materi and fol) fem the envizon> ‘nent, process then resource turing them in end-proets or consump tn) ahd spore of lage amounts f diated andr ceil rans fovea estes estes) ack int the erionment Tis old materials balance perspective on the economy Is fundamental fo environmentalIntroduction conomis analysis. We expand on the mitral Balance mode of the Economy in Chap 1, Bu the cuca ht he eam yete i 0 Usd syn. AS move rsnurer ae sucked ito the econony om the fmvronment so more wales are pushed back info the ensronnent. This puts pressure ns ited capt to handle the waste without Rar 10 Romana nimals and plats 5 Ecological limits on the economy “Theres very eel bat ulinate Sense in which economic sty i mite fr ‘bound’ by the capactes of tara crvronments. Now the iit nce ast origins the work of hikers ach ay Manas (1798), Ricardo {O81 and Mar (6) Malthus wore about ae so carey. He frleved that sy the economy developed, population growth would always tend to ougrow the means of sebustene (oad pote by ase) {otate of misery, “the stationary wate, would be the mevtale end result Rend tock s more sphatcated and aghaly moe optimistic perspective when he ad that ter lin or sere os the eel poblern for 3 [rowing economy, Rican ana, see cat y sig cots a the Fighet grade resources fe best agcultual land, pres deposits of mineral, et), wich are explted Hist, become exhausted ard fave 6 be batted for by saccessvly lower grade resources. The cost of exploit ‘Som ncadingpoiuton cst, soe Captor 1 and 3) escalate ab the ‘rade pro of resoures dds Tater in the nincienth century, Man hghtghted the ponies that economic growin might be limited. because of socal and’ pial unrest ‘within the atonal enemy and assoc scsty (Uhisas Tle expanded by hi followers nto am ieterational, gba! economic conte), The ‘sal Tit to growth theme wes picked up again by some ecoomists ding the development of etvironmertal economic the 197s. Inthe ery 1705, ‘pinion poll evidence inthe develope counties, for example, seemed 0 cat that despite huge absolute increses Inthe mater) standard living prople on average sid they aid ot el much happier with thei Eves, the Euterinporadox (Eastern, 1978). 1 tured eu hat thee] good far {hasa comple phenomencniersed mach By li income and socal ‘Sato aby sbsolate quant, “The “socal lini theme was abo ‘erther extended and labrated on daring the 1700 it the ation of mre! ener connate with economic froth and development. Edi sates (Le. questions of right and wrong) Etvfaced on the potently egtive snp of the fas prowth madera ‘onomiceytem, the prospects future human generations ad oe human ‘atu a well nvom eaceriling dling moral standaed in conten sity (ce Chapter 2, Invoduction (ue very bre histori survey should abo Include mention of one other Indes ninetoonth century thinker, J. S. NU (157). tke previous Pola economia, believed that the econeric grove proces would end in fhe stationary sa’ At this point there ovould be s tae population level Served by 2 faed amaunt of Rossing, iniatuctre, farms and other Indust plate, In ecmomic terms, thre woud be a constant stock of Inuman capital (peopl) and» constant stock of physi api (achnes, buikings: et) lnaentally, Mil argoed that i was quite possBle 10 oncene of ths satonay site sey ae scaly erable, ving people the fine and space to enjoy the spit, ane and edueaional aspect of the omar onion. “The ‘constant lok’ Kea wos another notion that reemerged during the 197, when H wis populazed by Daly (1973) in a book advocating the ‘Galbcrae creation of» no-prowth steady-state economy. For Daly, the key pul question becomes, have big (re phyla sale or sie of the harman [Presence in the ecayster) should the ewanomy Become (given that is @ Subsystem of the environment) relative to the overall system (Le the Fiosphere, economies pls ecosystems and all hei nterlatonsps)? He hte of conventional sronomisbecare se ec the discipline fl 0 ov = pe aa of he serie ie pon = Pe pita eure use) Th silent caveat inorder at this pin inthe introductory dscssion fe evolution of environmental economics. While the ‘mis and ‘constant Siok Gteadystate) concepts have been and remain important fee for nabs and debate, «belt in them br not a cesar feature of rode ‘virnmental economics. Indoed our postion tha snot neces 1 {cally embrace the steady-state pluosophy (we stout the reasons why in ‘Chapter 3) In order to adequately safeguard the environment on which we alt ‘depend, Ts also the cate that envionment economics i aot a state body of Inowiedge but an ongoing proces of change, refinement and debate. Most recently, ove the last ve eats ox 80, a spit has occurred which bas le ‘Some sais to comment that + ptentally seperate subdicpine called ‘Cological economic’ har Began fo emerge. There i however, no dear ‘Srverous cn what ecole seonomic embraces oe how i fers Eom ‘Svienmentlcconomie, We el ot in tix naar te empl 0 Set ‘Sutin any igor ey the ble diferencs between the Fo approsehes, [At the rk of gent versmplcation lis, we suppose, possible To argue ‘at colgkateconomin ean be viewed as a reaton to, and ejection or ‘moditon of ertan ofthe assumptions that tend to ehacatenze envi ‘mental economics. Days advocay of the eady-tate economy andthe vt Importance ofthe sel’ ese, isan example of how eae economics IBigh diverge from envronmental economics. We will flag. some other poten! points of divergence in succeeding chapters (Geen. particular 3Inroduetion (Chapters 2 4 and 8) but wl stop well short of any comprehensive positon, ‘The bak of the analysis nti ete davoed fo ah ekomentay expostion of ‘he principles and policy perceptions of environmental soon ‘Before sce une the hase structure and eranizaton of the nacneding chapters we return to rica urvey in order to highlight a amber of ‘ther important concepts which have been seated in modern enon ‘mental economic hiking. Environmental pollution as an external cost Because the economy i an open system Is tree base processes (extraction, Droessngibicton and consumption) al nvotve the generation of waste Prsucts that eventual find thet way back int the environment (he ait trae o onto fn. Too mach vat nthe wrong place the wrong, He (or over foo long + ne) wil cue Blogs and other change Sn the ‘tvionment (known a contamination) which themes may then cae ‘arm or damage to animalplants and thee ecnystem (plltion). 1 thee ‘hvonmontal damage elect then serve to Ram aman Real or neeaieiy Hfet human welling in some other way (Le reduce the pleasure af ‘uldoor recreation, ete} eeenamits Would recogaize the estnce of econo ‘mic pollsion "The econo definition of polation is dependent upon both some physic lect of waste on the envtcnment and a human reaction to tat py (dec In economic perlance, thee has been ah uncompensated loss of hraman sellare (wellbeing) de tothe poston ofan esteral cost (e. Inalth damage, mxbidt of mortal increases, os pleasurable reretion ‘experiences ec.) relat to he eison t thea discharge to water oF ‘onto land of waste substances, So the physi presence of poltion doesnot mean thst ‘economic pllaion exits Further even fewonomue polaon trae presenti fom lvays being the ae that shoul be eliminated, We expand on thir argument in Chaps 5 aed 10 it was Figo (120) who fat fomnalized de tpt of pouton on the working ofthe economy. His analy distinguished between the pie ets St production and cts (enepslated fol av mata [Sour cot et) a the fll so ests (om soy 6 hole) of ch actives, What he saw was that poltion gives ie to external cost, which Arve a wdge between private and soda cory. So the socal cons of production o consumption are made up of private coats pts any eterna uns thatsnay be present The sodaly opal level of external consis ‘nlkely to be zero zero pollution) becuse of the natural capacity of the ‘vironment to avo sone waste and the cost of contain pation, Zero polktion is desale, however, when the pried damage fom the ‘spoil of certain toxic and ardour subrances i thought t0 Be Introduction “xtastrophic in some sense. Unfortunately, real word polio stuation ae ‘otter beet by 2 lack of data andor understanding oer jst ow dangerous Some rls tleances wll ten oat & be over the long ran Making, ‘Sesone under uncertain Is 8 complex tak and we oaine some of the {stu nvved in Chapters 9 and 1 Non-renewable and renewable resource use (On the basis ofthe materials Balance model of the economylenvironment Inna, rsoare extraction (and harvesting) aces taro the proces of ‘somone atvy. Resources may be simplsticaly aiid as exhawsble {or more properly non-renewable) or as renewable. The forme are ved in ‘overall gaan, ro that we of hem Ina gen Une pete means that there {less of them avaible for other me pens, The basis of the economics ‘of nontenenabie reources was fimlated by Grey (198) and Hotel, {OB31). Ther_aalyis was developed in the context of the undedying Historical concer thatthe work's eahausilerewaree (mineral, fret tnd olher reanurces ~ renewable and nomrenewable) might be being ‘irate oo rapidly and sod oo heap ost of the non-renewable resource theory relating to the activites of nine esting fee primary concerned wh the best pia’ le ‘which resource deposte or Bede should be etc, and also with the ‘plinal amount ofthe resoure that shoul he exacted. What Gray and Hoteling showed was that nthe case ofr example, the minerabs-extacton ins, the pradton In ay gem poied fe nt independent of produc- tion in say ather period. They proved hat Bocuse the current rte of “station of asinetlataly fers Ue rout fat mineral hat may be ‘sted in futie periods, the corent corte of extraction (and. tes of ‘strction are saber to set of quite completed fores. Thus, caent "traction costs depend on cueent input ots el, abo, et) ad aso on post aes of exrestion aa nthe effect of arent extraction on the fate Droit ofthe mineral depoat The owner ofthe miners depot aly {omnis tt! profits over a given ine orion (known asthe net woe) ‘athe than simply mapmize profit in any give pio. "Recon of the esumpton of 3 faed amount Of pen mineral resource, Gay reaonel that esac coats (analy analyzed i terme of marginal ‘on ke, costs per unit of adiona! output) woul facade an adonal ‘lerent, He developed a concep fat we roe call ser est, the notion that Posie future ute of a nontenewble resource fe neceey socio i {nis ofthe sour eock are expe’ and ed ony Soin act ero terme the on of sing a nonrenewable resource (coal, gn, ol and ther ‘nines depot) fe thertare made up of the nam oft extraction cos (28 ‘tof ines, ling rp ee ard Ue user cst element sIntrodvction as noted that the ower of sine depoit might well maximize ttl rots by postponing extraction (anseving Feoures forthe fete hf ‘ample, was expected that the price of the mine mould incease Substantly i the fture Ge. increase immer cot) eration cost ‘Tae to 2 new teconlogy were thought katy to fll inthe Future. On the ‘her hand if cutent inoet ates asd out an financial pestinents Were Incrsaue then ths woul sve to reac crvent cates of mera extacon in known deposits, The owner could nov ivest any eament profits deaved ftom exylion and in he higher estes of interest. Prot ow have been ‘made more valuable relive fo fate pot, with Ue later now beng more Iheavly discounted by the owner. Discounting i a vey important general ‘concept economic ana and rect the fact tat we tnd fo tear te and benefits the fture as beng of es importance than cost and benefit now (ee Chapter 7)- Ie tn ot that the scout ate how much lees vahable future caste ad benef ae) of prime importance in termining the rte at which noterenewable and renewable remurees are teed face Chapten 15 and 16). Hotaling (198) showed that under etn onuitions the rent o yall on a resute (the pie net of eration os) ‘would increase aves Hne a9 perontage ate equal to theres ones ‘Becount ae. ‘Changes in the ate of interes inthe real wor wilt no jst he value ‘of profits, but la the level ello that mineral fem wl pa ito exploring, fo and developing, new tes for foture extacton. They abo inucnce investment in new exptl equipment, Both in deposits already Ding worked fd at new deposit, There can therfore bea number of eating ors 1 the increas aes of extacton of known deposit “Carle (1958) brought the question ofthe optimal amount of the tot resource deposi to exact tthe fore. He emphurized the point that No ‘ringing frm would ever extract the enite amount of a depost (Cal's analyse showed thatthe optimal at of extecbon varies with the level of tation and vee vera, and. that the exstenee of uneerainy npn the problem even farther. Modem economic opimal resoure {Se anys sefet these completions and we Gel with sm ain form, ‘only n Chapter lo (he pushed erature is echcaly wey demanding otlings werk served to highlight another Important st of factors in cxvironental economics analy showed that i stations elated lice or eaty acusenty to the resource depost (or for that mallet 10.2 renewable esuice sacar 2 forest or Hisher) to rapid a at of extection ‘would result. Open aecen x possble because er propety rights do nt ‘ston ae cay challenged” Sof many fms can dl 3m eld, for ‘Sample, no fi induced to bold back and the ld i exploited 00 ‘apy ad gas are ls lost. The open ase prem as, ortanstly ten confuses the elemental sconomiceBterature By regent ee ‘ens tothe common property problem sad the tragedy of the commons 6 Introduction problem, in fact common precy papety owned by a community and it ‘hon bjt to ange rues sol nm (ae Chapter 18). We therfore preter the term the tagedyof open ace and ink mot justo the peblem Erthe best at of resource explain, butt the problem of palatson and the rte at which the esvionmen’sseimiative capacity 48 ality to ‘absent wastes produced by the economy wilbout eibiing signs of hcesve change and stress and therefore physical and econemie pellition) ‘Could ul be depleted or destroyed ce Chapters 101014. In the ate of enewabl resources (Saher, forest ofIvesock, nd rangeland), the rules for optimal se over me were fist comprehensively Formal by Coron (195), He compared the ulation ofa shery onder ‘open ares and single ownership cotons and showed that under the Tormey repay tesource Tents weuld be exhausted and the resource sll ‘would be puabed close to eatincion. Um the renewable resource cate, {sons about the optnal amount of the resource to harvest and when frvestkae interdependent. Tip © beaase the resource Hl sti ts ‘ome sleek) grows through Hine and he Increases the potential harvest sk he longer the deny harvesting From ‘cowboy economy’ to ‘Spaceship Earth’ In 1966 Bouldin woote an essay on “Spaceship Earth’ which combined ‘ronomics and sme ecence i Order 1 bring together the view of the ‘onomy asa ceca resurce fw system, and ofthe envtonment as 2 set ‘lt, resource sacks fr souren) and natural abiativecapacts (OF Sk} for yts, Bouldng argued thot we must cease to behave asf we lived io a cowboy economy’, ih united new terior (he. resources, “Sources an inka) fo be conquered and Jaen t teat planet arth a Spaceships The spaceship acre systems n which every ert has tobe Imo to rece matey reduce wastes, conserve eaheustble energy ‘Rurees an tap inte portly ines energy sore ach as slat power. Toulding’s satel work a formalize in the materials blonce models cof Ayres and Kncese (1969) and. Knewse etl. (1970), Ther adaonal ontuton wast shot that wastes are pevativedrouphout the econenic ‘Sjtem Since the dncoge a ero 8 wants to the environment ie inevitable, pluton exeraltycfleas ae alo potentially pervasive. Some fou of government intervention to ‘contr the vate and extent of pluton is therfore ruled. Contot could be exerted i rgultions and awe or va econamie incentive Instrument sucha fates and. permis (2 Chapters 10 to 18), Government inlorenton i, Bowewer, no panacea for ‘uonmenta depadation problems and wncoedinted ples (Merve ‘on faire) can make mater wore ce Chapter 8 "Because entronmental econ as accepted the hypothe that theres 7Introduction an extensive interdependence between the economy and the envionment, Some ofits analysts have also pointed out thatthe design of economies (ee ‘mart planned or mixed) offers no guarantee thet the life apport functions (of natural environments vail porsist. The materials balsnoe model shows ‘Seay that the envionment provides thre basic fencone I sopples sources (renewable and norceneeble) asim ast prot and 4 provides humans vith natural service such a2 athe enjoyment recteston and ever spas flalment. These the functions can sno be rogaded ar components of one general function of naira envionment = the fancon of he supp. “All these envzonmentl funtion are economic fnctlons beau dey all uve a poitive economic vale: we bought and so these untons ithe rmarkceplace they Would all have postive pies. Msrestmnen of tual ‘rvirnments ten asesDesuse we do no recogni the postive pre for ‘hese coonomie fancons, a» there are no markets and therefore no sack (racer tr many environmental gs end scree (mathe Talore, Set Ehapter. We lack infornation and analysis that could demonstrate whether ay particular economy i consistent With the natural enernments which are Dnecessenly linked to that econ. We do not have what swe cou ell ‘estence theorem tht rates the scale sd components of an econo othe St of envronment-ecanomy nterelstionshipe umderying Wat se. ‘iathout ds theorem we run the rk of degrading and pethape destroying ‘evionmental functions we ar interested in sustaining ov economy Ove tine, it Becomes Impvtat to establish some pincpes and then praia ‘us for sustainable economie development (se Chapter 8). The Valuation of environmental funehions, which are genera prio an impertat task in order Yo hep cone econane decisions which test ‘tural environment a if they wee fee goss wervce, an therfore lend to overue. Some of the mthods and techokques tht have heen ‘developed in order ovale these environmental ete sont fev ae reviewed in Chapter 8, Economists goneally advocate wast they call ‘cont-benefl thinking, which can be appied to Individual pejets oom ‘Sams, rade, power plant, te) orto poles or even wider toures of Stn. Simply pet the testo compare al he relevant bene fren, 2, {he buldng ofa new water supply serv ith the cout (constuction end running oss) of such a projet (eluding the envionment eet). Hoth ‘sts and bene are transatd, 2 fra fein, ito monetary terms and ‘lsnunted over given time horzon. Only projects with Benes grater ‘amet ae scceptable (ee Chapor 2) Environmental economics merely deploys cost-benefit thinking in the contest of environmental problems and fetes. Sonits seein, ‘he monetary evaation of the erwionmental benefits of enwvonental policy, eis obverse ‘damage cot essen has havo min eft, Introduetion to integrate the unpre bat valuable factions of natural enveonments into foet-benefit analysis of tal world projec, and, second, to tstate the [inde of economic damage dane to atonal ecanomles by resource depletion and polation eee Chapt 3). ‘Once society has deided om an “scceptal’ level of environmental pality assisted by, among ser factors, economic cost-benefit analy there are Sil forte protcrs to be resolved. To transform the decom ito aly eines 2 change of Sehavour on the part of producers and conemers- [us cotinng debate exits enronmentl economice concerning the ‘elative mest f coat and contol regulation (CAC) ard market based Incentives to contol pallton, ‘Novi (198) has sunmavizsd the postion as follows. In choosing a pollution contol poly, we need to determine {@) hat policy instruments and wchologls for abatement of pllton are vale: (by Woh the objectives of the potion contol potigy are, with partear ‘eference fo the typeof potion and the degree of ereionmenta sk Domi the extents rebilty of polio contra methods, the fll [cca cmt of palin contol nd the aca incidence ef the cots ad benefits e. dstabuona fet) {how costetcctive are the diferent plicy instruments wit thse objec “The regulatory approach (CAC) I based on the sing of ones by some enll goverment agency #0 do oF not foo something (ce. install and ‘operate ape of egepment or New proces), Known nthe rite Kingdon Phe application of Best Praclable Meant (PM) and Best Avaiable “Technology Not Eating Excessive Cost (BATNEEO) ov the United States 48 Best Available Control Technology (BACT) (Gee Chapter 1). The Tagulatons may also ever the fllowing aes (a) tints in terns of mania rt of cichage fom a potion source; (8) polation dischange ban related to pollution concentration meastres or mage cost: (6 specication of inp or outputs fom a given prection process ‘eonomic incentives require no ston But payments, ad, a prin, encourage the sonoma rational pollitert change beaioue By bala ‘Shy seduced pyenent o 9» pototon tx gaat Increase cst Incurred in reducing pltion charges. Early econome work in the field of Plan contol stressed the derabity’of Ue eonome incentive approach {ieneese, 1960). Given cea assumptions it can be shown thatthe most ‘cent (strly the mest costefetve) way of achieving some predetr- nine evel of eavioaental quay rhe mpstion af pollution ax oF ‘Mlted esomomie incnlve inctument. However, when some of those ‘Seumplions ae elated snd eters such as dstbaonal equity and tcl respect to 9Introduction ‘considerations oe insaduced, the casein favour of the incentive approoch is uch es dear ut (Boh and Ressl, 1985) “The rest ofthis Dook organized in the follwing way ‘© Pat (Chapters 110 4) cavers trang of basic sues ending up with & lisesi of the concept of sustinabe economic development fe Pot (Chapters 5 arts) dealt withthe causes of ennjonmental preblem sebich see analy in tems of to inerlted lore’ concepts, Iarket aire and govern pokey tale. Part I (Chapters 7 to 9) covers cost-benefit analysis an ts application ‘o environmental issues! The methods and techniques that have been pple, inthe absence of market bse pclae dat, der vale fvionmenta assets in tonlary tems ae reviewed, and the teion fends with a iscsson ofthe problems cused by uncertainty. ‘© Part IV (Chapters 10 to 14) deals with varius forms of goverment Intern that are possible in ozde o protect environmental guy. A range of ali instrament, tes, changes, permis and repulaons are pps in er of thee economicefiency ad other cers, ‘¢ Par V (Chapters 15 and 16) over the basic analytics of maura source ‘sage and mistaable management ‘© Pet VI (Chapter 171023) composed of 2 saris of mini case sty chapters on varour ‘ca and pata scale enitonmenal management References Am ond A Kone, oto, pti and eerie, Ann ohm and C Ronl,‘Comparave aaa of arma ply instants ‘mA Kase and. Sweeny (es), Hambostof Naural Resa ad rg “cn, Now Hood, Arter, 185) Bouldin, The canon of the coming Spaceship Harty in H,Jant (8), Ext Cy Eon one Hohn eat Ps, erie "The economist of fund setouce wih pate reference 10 Dabs Stanly Sie Enon, Heenan, So Francie, 177; cond iin, san rese New Yory 19 R.A: Easter, ‘Does economic owt improve the huran bt nF. Dada 1 Wer (od) tina amd Hwee Emi Groth, eae Mess, New York 7 18. Condon, ‘Teonomie theory of a common propery tesouse: Ue Her’, ural f Pitt Eamog 6: 12-12, 15h Gia, "Rent under te assumption of ehoustity, Quito fun of Introduction Holling, “The scoomsier of xsi source orl Puta Eowomy se 17, 151 ARs, The Eamon of Reina er Quay Manogemet, Resources for the tre, js Hophin Univers Pra, Bane, 95 AD Ree, Re Ayes and Re Age, Eason Be Econ A els ‘rc Apron Reourens fo the Fate’ Washington DC 197. ‘Malus sy othe rine of Ppt, est pis in 178%, repented ‘by Mocmlan, Condon 190. Nar Cpt Volo Ian il Lawrence and Wiha, Landon, 197,170 an ‘but ace Rosman od), Marea Hem, Fegan, Harmonsoworth, 1.5 il, Prins of ui fanny, Parker, Landon, 1857 GA! Noxton: Resour Boo, Edvard Amol, Lenn, 198 Funan, mmm, na eto, Pon Pres, London, 183, 2. Pago The Lamm of Meo, Macsiln,Landen, 192 ‘Ran, Pra aia ssn and Tete, Everyman, London 1925PART I Economics and the environmentCHAPTER 1 The big economy According tothe autor of a recent non-conventional economics test iti Important to secignioe that oman commenti ae par of 2 larger ‘community that encompasses both them and non-human mature (Daly and ‘Cot 199, Prom ths pespecive, “he ndustl economy isony part ofthe Seret Eoonomy” ~ the eronomy that sting the ot eb of he and ‘everything that depends om the land” (Daly and CoB, 1980p 18). Ls tis bg ecmomy that of smate importance. “Convento economic ethonks olen convey avery mieading pctune ‘the relationship botaeen an ecnomie Stem (0 el of fsituors and Susie designed to efienly lloate sce resources amang things that provide benefits, thereby staying, human sean and desires) and the Environment made up of ecosystems or intrtelationshps between Lng Species themselves and sh noniving or abiotic structure) that surrounds fd underpin it Basialy, simple economic modes have ignored the ‘tonomy-chvsannentinerelanshps altogether The economy por tray ae 8 coved and linear sytem shown in ox Ll. Thy of out i Physically impessite and the implications af Row an eonomy does in fact stan itl over tne es at the eoe of environmental cone ought Tealiy the opposite Is he case The economy ian open and cular stem fohich is only able to fonction becnuse of the suppor ef i ecdogial foundations. A working economy mast extrac process and discard Jog fmmounts of phe materia, This means Wat the economy fs sabe physi constraints. ‘The materials balance perspective vironmental eanomics lakes at starting point, the lessens to be deaven {rom the Tow of thermesdyatc, The esoneny-enronment interactions te best porvayed isthe materials balance model, seed onthe Fest endEconomies and the environment The big economy Box 1.1. Conventional economic mode ‘Second Laes of Thermodynamic, a shove in Box 1.2. The mdel represents The economy ata materi proening and prot tantormabon #91, "Veet mates ae drawn io the economic rystem (eq non-renewable respurcer such as foul ful canbe extracted unl thee stocks are exhausted ‘nt renewable resoures sucha fisheries and fests can be harvested) and then undergo a eer of changes a thel energy and entropy (he aetna) ses, Eventualy after ate lng the nom prodact atput ofthe syater ca te patil recycled with the resid ‘alan’ mates (vaste) retuned 10 {he environment rom vous pointe in the econo procs, ee Box 13 “The materia that ft enter the economi system are not destoyed by. poison and consumption actives, they ae, however, dispersed and ‘hemes waneformed. In prt, they ener asta of lw entropy (5 ‘ec aerial) an lee ina sate of igh entopy (a cle” materi Sch atl fompernture het emissons, chau gases, mid mania trast). At st sight the entropy concpt seems coanter native ae hr kee orally o defined rigorously nts daca. In ay ems, httpy fa ceva property of systems which increate in any reversible Drocext When entropy ceases, the energy inthe system Becomes Hess rable to do “afl work’ No mata reychng prone can therfore her be 10 pr cent efficent (Ayres and Krewe, 1569) Once the material Tlnce perspective le adopted, cary t sce thatthe way humans manage thei economies impacts on the envionment and, in the reverse diecton, ‘environmental goat impts onthe lent worng of the economy. ‘The multifunctional nature of environmental resources Enironmental economists ate secking to expound the psiniple that natural sjsome ae mulfnctiona asset an te sense hat the enveosment provides [Romans with wide range of economically valuable fnctons and services ‘nar resource base (renewable and non-ronewabe source) 1 et ofnataral goods (andaape and amenity rsouren 1 5 este asiiation pact 19 ie support system “The principles of scanty and epportuniy cosa well the sbjscive of sn etent allocation of sore resources, can now be applied t he complete Caleton of environmental goods and services! wast asiralatonfanchons, peace a qe, cla lr and wate, unspot landscapes, et, Ienvironmen [Blresqurces ae becoming more sce ton economia can playa le {in devising strategies to mitigate some af the consequences ofthat proces. A thle wl be requlred between the interests of people wishing to ue the ‘vironment now in 8 ect way fe. a8 8 source of raw merle of 3 3) and thon wishing to enjoy Ht now an idee use sense (68 10 6 w ‘Coa ond a ees ena Cpeoe lated tm SSeS anctr Fos of san Economics proceed by making models of sce, which are sini ‘representations of reality. Simpiyingasumptions ofthe mod! (a) no government 7 = i } j : i : é i i (@)allincomes spent not saved {0 no international trade } 3 gThe big economy ox 1.3. Simplified materials flow chart economics and the environment Box 1.2 Simplified materials balance "pn oo uouwonnus ayt ow) peg aise jo uno uDpeNmba ue fut wow) Above pue screw Uy Buy Wore usdo ue ve palezvodFeonomics and the environment The big economy The es of thea lad ow propositions ha are nora in 1. All resource exacton, production and consumption eventually result In waste product (residual) equal in materienegy terms tothe sources Aoming ito there sectors 2. There i no posibiiy of the 10 per cent eet’ recycling) of these waste products 10 enter the resource Now again because of the second [entropy law of thermodynamies, ‘A economic syatems contin 3 number of rcyting flows, although the level of recjling ello and acy varies Between national economies Recycling flow (1's known asthe home sap low becuse the rected ‘secondary’ material never leaves the processing plant, Home Sap rye: ling rates are very high. eyeing ow (2), ‘prompt scrap fom alo has a high city ate, but does equi the inierention ofa secondary material ‘merchant ft to fete the cellecton of scrap and it redhection back Into base processing. Reeling flow G), "women scrape composed of packaging waste and isthe staple business ofthe recycling merchant ms Feeyeing flow (}, ‘postconsumer scrap ix the potently wecelble ‘components ofthe household and small cmmerca premises waste sear (omunipal sold waste, MSW). Activity rates stsoined with ths pe of recycling have historically been low in alndustlzed economies (piclly less than 10 percent ofthe total MSW unl quite recently, with the spread ‘of bot, can, paper and even plastics recycling banks). Recycling flow 6), ‘resse' is a practice that has al but disappeared in moder economies and |S now restcted to retumable Botts and lined number of other examples. ‘Why ist that type 1,2 and to a lessor extent 3, recycling operates ata high ctvty rate, hile types and remain a clave ew hve of ctviyi Much ofthe ansver i due to four pyle factors characteris) {nd the influence of thermodynamics. The four factors are mass (alum of Fecyeable materia), homogeneity he level and consistency in quaty terms thnown as rade) of the recyclable materi, contamination (Oe degree to which “ferent mates and other substances are mixed together and focation (he numb of points st which the materi ae fst discarded ab waste. Compare home Serap ow {)) and postconsumor ‘Seep ow (8). The former is characterized by large mass, high homoge ty, low contamination and single cation. The later i characte by Saal mass, low homogeneity, high contamination and multiple locations. In financial (private cost) tems the protablty of recycling flows 1,2 and 3 wil be much higher than flow 4 indeed the Inter wil often incur net Financial costs Al this sotto say that reeling of MSW may ot yd net social benefits sufcient to outweigh the private costs and therefore Tepresent an economical elclent ach. Nevertheless, the message Is ‘ear, 100 per com recycling it nt feasible and very high over rates of fecyeling may not necessarily be socially destable fwe expand on ths frgument in Chapter 10 "he extent of reycting in national economy wil also be determined by “able 1 Btls place in FEC recycling league (1860) Paper ‘Gas tonnes) Alumina ‘gio oan wow = Denmark Sno soa na Pree aaa owen 2a Germany FRG) a7 OED S100 700 Gratin 2575000 sito om Greece an ‘wano a freind na nao ma ts Fo soto ‘oom Netherinds 1438000 occa ‘on Portugal 200 40m aa Spa isa =a ren tonnes ‘egiom oot amor i Denna Sond Sonat oe France ona Sono Caine Germany RG) 8.822 mtr rt Gren Baan 80 ry oon Gree na. oan na fread na oan Art hay dine oon ny Nethevinds 06 dow oa Porral ‘ima hoo 30 ra Sl none 0740 ian ‘oe: On tonnagaapta tad, However, Blain aos ess wall, was th out fine counties In paperrcjelng, eit ut of elven for stand fmt fourth ot of sito sham “Seeal he best echo perfomance was tunedin by West Germany an the Netherlands Tir recy ater on per capita sir were abou ae [od se Brain's fr paper ard aluminium, and tee fe nasa good fot ss Source fad Bata Sonica (950)Economies and the environment ‘other factors, such asthe relative pics of secondary ected and primary ‘aw materials as inputs into production processes! the end-use shuctre {umber of uses and the grade of material required) fr any given secondary ‘material: typically lower grade secondary mater .. mised waste papers Sind mised colour glass, and the small mumer of uses that are avalable, {echnical progress in both secondary and primary materials Iosies: Fistoreal and cultural fctors which condition the degree ol environmental smareness in Society ~ see Table 1. Te basic idea of 2 national recycling rate is given by the rato tonnage recy annually © Samal omoge alate ar eng But matters are made more complicated by, among other things, the fexstence of inemational trade in secondary mates. imports of Secondary mata are icloded inthe ealelation, then 3 recycling atity fate (the ‘tization rate) has bean calculated. If ports ae not incu, then a recyting effort rate (he recovery rate) has been ealeulted, These {wo rats ae often cantare in debates about recycling bekween diferent Imaterls snd countries. Taking the sample of waste paper, the UK recovery rate in 19H) was 30.4 per cont, while is uaa rte ws) per Th 1969, Britain was in the lower half of the European Community recycling league fr paper, glass ad aluminum, The figures in Tablet show that on tonnage bats, Brain perigrmed reasonably wel H was second ‘ut of nine counties in the paper reyeing league, hid ot of leven for ls, and fourth out of si for alumni sppreite a sceic landscape oF tropical forest Kept in a natural tate as poste. Further, the ned ofthe present generation of peopl wil have balanced against ftre generations ends “The question of how, a under what conditions, fee markets ca help achieve ths balance has spawned « long and extensive Meat (Moron 19; Perce eal 1985), Eeonomic theory demuonstetes that given coin ‘essumptions the makes mechan i capable of ecevingeientrexource “Mvcitions, provided tht externalities ae not present (see Box 14), Wher “xtra are present andlor when pubicsype goods (o be dined below) rete allocation, matkets a fa the elleny tet face Caper) 2 The big ecomomy Box 1.4 Market mechanism Tyers (demand) ad sells (supply) coming Into contact via a voluntary ‘decentralized exchange process ca, given the right conditions determine “tn eauiorum price sid an efilent allocation of resources ie there ‘Memmtive allocation tat aver everyone atleast a wel off and makes ome people beter of Fel) Demandand supp eatonip. ceeaee en > Se ms stn tr main it sealeme red penn ‘anyon de 2) Panel (a ilanrates station Ia which the price of a god is taken to be ‘of primary importance in determining jest how much of good people are prepared fo buy, and conversely how mich ofthe good rms ae prepared Io offer sale. All other factors which could ifuence demand and supply are ‘Ssuied constant he Income, pic of substitute foods, et). 50 Qua AP a [Atposiion e, Qy = Q given a market price P ‘Ave, the marginal wilingnes of consumers to pay (her valuation ofthe _gond)is jst equa tothe marginal cost about row materi, energy ec) ‘St preclng tat good and effcency fs manimized a Tong asthe sutra conditions for pecct competion ae salisied fa) large numbers of buyers ad sellers; {perfect information; (6) gonds being exchanged can, in principle, be individually owned: (Gd) the fl costs of production and consumption are elected in market res Price has adjusted unt at ethe amount hat people demand of something ‘sequal to the amount that supplied. Resouees ae allocated sulicent to ‘reduce an amount 0Q. There is no allematve allgstion that leaves [veryone at leat sel off ane makes Some peop better of