ECON 6430

Environmental Studies

Topic 1
Introduction to
environmental economics

Picture: http://hvbackyard.blogspot.com.au/2008/07/51-summary-of-my-backyard-frogs.html
 Scope of the course
Master-level economics course

Focus: economics of pollution control

– Efficiency: allocative vs. technical
• eg: electricity generated using coal is more efficient compared to gas =
min cost. But, cost of pollution arise from coal exceeds the saving cost
– Optimality
• resource allocation cant be optimal unless its efficient
• efficient is not the only criteria for optimality
– Sustainability
• taking care of future generation 2
 Cont…
Other topics, e.g.:
– Environment & economy
– CBA
– Valuing the environment

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Topics

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 Learning outcomes
Expected to have:
1. An understanding of environmental economics
2. Able to use economic techniques to analyse environmental
problems & assess environmental policies
3. Developed research skills in the field of environmental
economics”

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 Textbook & Readings

Perman, R, Ma, Y, Common, M,

Maddison, D & McGilvray, J 2011,
Natural Resource and
Environmental Economics, 4th edn,
Addison Wesley.

There are a large number of environmental

economics textbooks. Find the one that you like,
& read it

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 Italeem

Slides/announcements will be posted here

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 Consultation hours

Tuesday 10am – 12pm

Room A205 Economic Department

Email: husnajamaludin@iium.edu.my

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 Assessment

Midterm (20%)
Project (20%)
Assignment (10%)
Final exam (50%)

Exams will cover all material covered in Lectures up to that

point

Exams are not redeemable

No plagiarism 9
 During lectures
Feel free to ask questions

Ringing phones is a “negative externality”

Please put phones to silent as you walk into class

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 Jobs?
There is a growing DD for environmental economists
environmental problems getting worse

Public sector: Dept of the Environment…

Private sector: Mining/energy companies, consulting companies, etc

Academia/research

NGOs, International organisations: World Bank, UN, ADB, …

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 environmental economics?

• Economic activities affect

environmental quality
• Pollution imposes huge costs on many
• Threats to future generation &
sustainability, ie: climate change
• Utility function depends on
environmental amenities

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Class discussion

is the no.1 of environmental

problem for you?

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 Class discussion
Class exercise

What’s the difference between the 2 markets?

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 Fundamental issues in economic approach to
Main themes
environmental issues
• Property right, efficiency & Gov intervention
– eg: market brings efficiency in allocation due to a well-defined private
property right. But, no property right for environment & fail to achieve
efficiency = Gov intervention

• Role & limits of valuation in achieving efficiency

– since resource, ie: clean air, has no market = no price = externality exist
because victims have no property right to get compensation for external
effects
– Absence of price doesn’t mean externality has no values = +/-ve values
– use valuation techniques – controversial?
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 Cont…
Main themes
• Time dimension of economic decisions
– Resources can be classified into:
• Stock & flow resources
• Stock: current use affects future availability. Eg: flora population/mineral
deposits
• Flow: no effects, eg: solar radiation, power of wind, flowing water…
• Stock of Renewable & non-renewable
• Renewable: have capacity to grow – but could be depletable if harvested at
higher rate than their generating capacity (sustainable yield)
• Non-renewable: no capacity to grow except on geological time scale

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 Cont…
Main themes
-To ensure efficiency & optimality, must take into a/c the use at
a point in time (static) & pattern of use over time (dynamic
dimension)

• Substitutability & irreversibility

– Related to policy implication
– If depletion of resource stock is irreversible & no close substitute,
it has a major implication for sustainability – high concern about
its use

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 Class discussion
• What’s the problem?
• How to solve it?

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Class discussion

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