ENVIRONMENTAL ECONOMICS | LECTURE 1: ORIGINS OF ENVIRONMENTAL

ECONOMICS
Topical environmental issues

1. Climate change
Climate change: the long-term shift in average weather patterns across the
world due to increased emittance of C02 emissions and other greenhouse gases
in the atmosphere

2. Hole in the ozone layer

Ozone layer: a thin part of the earth’s atmosphere that absorbs the harmful UV
rays from the sun. It is the second layer of the stratosphere.

3. Deforestation
Deforestation: the removal of forest or a stand of trees from land which is then
converted for non-forest use

4. Air pollution
 Diesel vs petrol

5. Rivers catching fire

 E.g. Cuyahoga River in 1960s
 This was due to chemicals in the river
 This is also common in African countries where dumping in rivers is frequent

6. Eutrophication
Eutrophication : when a body of water becomes overly enriched with minerals
and nutrients
 This results in the excessive growth of algae
 Algae is a photosynthetic eukaryotic organism, which can produce toxins
harmful to humans

7. Feeding livestock antibiotics

 This was done to prevent cows from falling ill
 However, this has altered their body chemistry

8. Female frogs with large male organs

 This incident was due to the secretion of pseudo hormones
 Examples of incidences concerning pseudo hormones are Proctor & Gamble and
Unilever
9. Pollution
Pollution: the introduction of contaminants into the natural environment that
cause adverse change
 Diesel cars are more energy efficient, however they release more particulates
 Volkswagen lied about the environmental benefits of Diesel cars
 After tests, it was revealed that they are more damaging to the environment
 Air pollution is dangerous because the particulates can enter the membrane and
cause chemical imbalances

10. Plastic and Landfill sites

 Not all plastic is biodegradable: capable of being decomposed by bacteria and
other living organisms, prevent pollution
 As a result, this leads to piles of waste material in areas of which cannot be
completely disposed

The Emergence of Environmental and Resource Economics

Environmental and resource economics derive from the following schools of

thought:

A. Classical economics
B. Neo-classical economics
C. Welfare economics
D. Environmental economics

1. Proto Economics
 Condorcet (1776): agricultural activity that by corrupting the air, causes illnesses
in neighbouring homes

2. Classical Economics
 Adam Smith coined the term specialisation and the invisible hand
 He argued against an overactive state and was a firm believer of laissez-faire
government
 Thomas Malthus was the first economist to speak about environmental issues
 He highlighted the growing concern of population growth vs agricultural growth
 Population growth is exponential whereas agricultural growth is somewhat linear
 Thomas Malthus believed that sustainability could only be achieved by halting
population growth
 Implying that celibacy was the way forward – no sex, no babies
 On the other hand, David Ricard spoke about the prospects of replenishing
agricultural goods
 Malthus and Ricardo, together believed that we were heading toward a stationary
state
 Mill believed that economic growth was not always the ultimate goal
 He expressed cynical views towards overpopulation, summarising that it was
harmful to nature and pointless due to limited social interactions over our
lifetime

3. Neo-Classical Economics
 Economists under the neo-classical umbrella focused on micro issues
 No longer focusing on scarcity and economic growth since it was no longer seen
as a problem
 They believed that value is relative, determined in exchange, reflecting
preferences, production costs and scarcity
 Demand and supply, partial and general equilibrium

4. Keynesian and Modern Economics

 Keynes theories of macroeconomics aroused interest in economic growth again
 Particularly focusing on the business cycle
 He and other modern economists developed models which forecasted there to
be no resource limits
 Jevons (1865) anticipated that we will eventually run out of coal
 Hotelling (1931) worked on the economics of exhaustible resources
 They were unaware of environmental problems

5. Welfare Economics
 Welfare economics contains rigorous theories of social good
 E.g. Utilitarianism: social good is the weighted sum of individual good
 E.g. Pareto optimality: at least as good for all, better for one
 Marshall believed that economic transactions have unintended consequences on
third parties i.e. externalities
 Marshall is the father of general equilibrium
 Marshall believed that if there are unintended or uncomposed consequences of
one agent to the next, the market transactions need not be pareto improving
 I.e. The existence of externalities shows that market transactions are not pareto
improving
 Pigou believe that taxes can counteract inefficient market outcomes

6. Environmental and Resource Economics

 In the 1960s/1970s things became to change
 People started to realise that there were environmental issues
 These revelations became entrenched due to limits to growth, Silent Spring, oil
crisis, pollution, space travel and congestion
 Boulding: “anyone who believes exponential growth can go on forever in a finite
world is either a madman or an economist”
Overall, we reached the conclusion that:
o Natural resources are scarce
o Environmental services are valuable
o Significant environmental externalities exist

7. Romanticism vs Enlightenment
 The conflict between these two philosophies occurred between 1770-1850
 During this medieval period, the church ruled
 It was a war between emotions vs reasons
 Beauty vs dangerous nature
 Romanticism is about doing what you fell like doing
 Not just acknowledging nature as a source of food or water, but appreciating its
beauty

There were three successors during this period:

A. Communism: a political and economic doctrine that aims to replace private

property and a profit-based economy with public ownership and communal
control of at least the major means of production
B. Nazism: purity of races
C. Naturalism & Environmentalism