TOUR1004

Economics for
Tourism, Hospitality &
Events

Week 11
Tourism and environments

Dr Ya-Yen Sun
UQ Business School
This week & next week
– The market failure problem of tourism
– Tourism carbon footprint
– Mitigation measures

Source Source
Market failure and the environment

• Market failure occurs when market prices do not

reflect the full social costs or full social benefits
associated with the production or consumption of a
product or service.

• It leads to over-use and under conservation of the

environment.
Sources of market failure
There are 3 major sources of market failure that are relevant
to the environmental impacts associated with tourism and
other uses.

1. Common resources
2. Externalities
3. Information failure
Characteristic of goods
Non-rival: means that consumption of the good by one individual does not reduce
availability of the good for consumption by others.

Non-excludable: means that no one can be effectively excluded from using the good.

Needs gov.
protection

Needs gov.
provision

Provided by private firms

1. Common resources
• Common resource: fish, coral reef, biodiversity of marine
system, water in the GBR
• ‘Tragedy of the commons’ - everyone exploits the
resource. Therefore it requires government protection.

Great Barrier Reef

Red Tabletop Faux Coral Decoration
2. Externalities
• Externalities exist when a third party receives benefits
or incurs costs arising from an economic transaction in
which he or she is not a direct participant.

1st party: tourist

2nd party: tourism
business (gondolier)

3rd party: the residents /

the environment
Venice- overtourism

What are the possible externality of tourism in Venice?

• External costs: pollution / habitat loss / crowding /
increased prices / crime
• External benefits: skills training / community facilities
Maldives garbage island

Thilafushi receives hundreds of tonnes of rubbish from other islands

in the Maldives every day. Sixteen years ago it was an unspoilt
coral reef. But it is now growing by one square metre every day
with rubbish.
The Guardian
 3. Information failure

• Another source of market failure is lack of information to

producers and consumers.
• Particularly relevant to the environment as we keep
discovering more information about how systems
operate and the impacts of human actions.
• For example, previously we did not have sufficient
information in the market about the travel impacts of
greenhouse gases emissions.
How big is the tourism carbon footprint?

1. How much tourism contribute 4. Which airline is the most

to the global greenhouse gas and least carbon efficient for
emissions in 2013? the long-haul flights (more than
3.800 km)?
2. What is the annual growth rate
1. Air Canada
of tourism emission to 2025?
2. KLM
3. Air China
3. Does tourism produce more
4. Lufthansa
emissions per dollar revenue
5. American Airlines
than other sectors?
6. Emirates
Market failure and the environment

• The tourism problem for the environment is ‘market

failure’

• Market failure occurs when market prices do not reflect

the full social costs or full social benefits associated with
the production or consumption of a product or service.
Private Costs and Social Costs
• Private costs are those borne by the private firm in supplying the
tourism goods and services

• External costs are environmental and community costs that result

from firms’ and /or tourists’ actions.

• Marginal social cost (MSC) is the marginal cost incurred by the entire
society—by the producer and by everyone else on whom the cost falls.

Marginal social cost = marginal private cost + marginal external cost

A market with negative externalities

Without considering
the external cost, it
leads to overuse
and underpricing.
This week & next week
– The market failure problem of tourism
– Tourism carbon footprint
– Mitigation measures

Source Source
Definition of tourism emissions
• Direct emissions
Emissions that are produced by tourism
firms due to their use of fossil fuel.
• Indirect emissions
Emissions that are produced by suppliers
for goods & services that are provided to
tourism firms.

Direct emissions Indirect emissions

Industry26%
Criteria36%
D2.1 (Greenhouse gas emissions) "Significant
53%
Fossil Indirect tourism greenhouse gas emissions from54% 57% controlled by the
all sources 73%
fuel CO2 organization are identified, calculated where possible94%
and 96%
74%
procedures implemented
64% to avoid or to minimize them. Offsetting
47% 46% 43%
of the organization's remaining emissions is encouraged."
27%
6% 4%

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Direct

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tourism CO2
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fuel

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How big is the global tourism carbon
emissions?

• Source 1
World Tourism Organization

• Scope
Direct emissions
Transport, accommodation
and recreation activities

2008 2019
WTO-UNEP CO2 estimates with global
tourism in 2005

40%
32%

21%
Some key messages from the
UNWTO report

• Aviation & travel distance are two key factors that crucially
determine the total carbon footprint of a journey.

v Long-haul travel by air represents only 2.2% of all tourist trips, but contributes 16%
to global tourism-related CO2 emissions.

v International tourist trips by coach and rail, which account for an estimated 16% of
international tourist trips, stand only for 1% of CO2 emissions generated by all
international tourist trips.
 161%

Source: UNWTO
Where do you like to travel last time?
Calculate your carbon footprint!
https://www.icao.int/environmental-
protection/Carbonoffset/Pages/default.aspx
The pattern: we travel further and
use more of aviation – hypermobility

https://www.flightradar24.com/32.64,157.97/2
 Revenue Passenger Kilometres (RPK)

It is expected that by 2030 a global fleet of

40,000 civil aircraft will produce 10,000
billion RPK per annum (Boeing, 2014).

Distance to the sun 67,114 times Slide courtesy of Professor

James Higham (2019)
How big is the global tourism carbon
emissions?

• Source 2
Nature Climate Change

• Scope
Direct + indirect emissions
Transport, accommodation,
food, shopping, and
recreational activities

2018
How big is the tourism carbon footprint?

1. How much tourism contribute to the global greenhouse gas

emissions in 2013?

2. What is the annual growth rate of tourism emission to 2025?

3. Does tourism produce more emissions per dollar revenue than

other sectors?

4. Domestic tourism accounted for 8.8 billion trips in 2016. What

is the forecast tourism volume in 2030?
How big is the tourism carbon footprint?

1. How much tourism contribute to the global greenhouse gas

emissions in 2013? 8%

2. What is the annual growth rate of tourism emission to 2025?

3% annually

3. Does tourism produce more emissions per dollar revenue than

other sectors? Tourism produces 1 kgCO2e per dollar. This is
20% higher than the global manufacturing (0.8 kgCO2e per US$)
and 25% higher than the global average across all sectors(0.75
kgCO2e per US$).

4. Domestic tourism accounted for 8.8 billion trips in 2016. What

is the forecast tourism volume in 2030? 15.6 billion trips.
Key finding 2 – who are responsible?

Top 10 countries with largest tourism carbon footprint by

their residents

Blue: emissions for international travel

Yellow: emissions for domestic travel
Key finding 3

When you are rich, you When the country is rich, they are
generate more tourism carbon able to produce less GHG per
footprint. tourism dollar earned.
Tourism forecast 2030
International travel:
1.4 billion in 2018 to 1.8 billion in 2030

Domestic travel:
8.8 billion in 2016 to 15.6 billion in 2030
Tourism and climate change

Source
Source

this “unlimited” tourism growth causes an

“undesirable future” regarding the impact on
climate change
About climate change

“The problem is that those who produce the

emissions do not pay for that privilege, and those
who are harmed are not compensated.”

Professor William D. Nordhaus

(Nobel Prize winner in Economic Sciences 2018)
 Help you and help the environment!

https://business.uq.edu.au/carbon-literacy-program#register