April

2020

Lesson 3

Risk, Economic, and Environmental

Concerns
 Objective of the lesson:
• Understand that risk and cost are the two factor behind all
decision;
• Describe the tools used to assess risk;
• Understand the difference between risk assessment and
risk management;
• Understand environmental costs;
• Describe ecosystem services and explain why it is
difficult to place an economic value on them;
• Understand principle of cost-benefit analysis;
• Describe ways in which economic systems and ecological
systems differ;
• Understand market approaches to solving environmental
2
problems
Contents
4. Using Economic Tools to Address
1. Risk and Decision Making Environmental Issues
2. Risk Assessment, Risk Perception and
Management 5. Economics and Sustainable Development
3. Environmental Economics

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1. Risk and Decision Making

How do you make decision

in your life?

Two factors that help

people making decision
are Risk and Cost;
Would you take risk dropping school for business?
It might be the right decision or it might not be right?

4
 If y
o ud
1. Risk and Decision Making y o
are
to
wit
hdr u will cheat
pro awn be ,
gra f
What is Risk?
r
are m ev om th
in y e is
ght our n you
cau yea fi
r ? na l
 Risk is he probability that a I be ng? the
ill ti e
W chea ill b ce?
condition or action will lead h at w u en
q
W ns e
to an injury, damage, or loss; co
May
b
wou e he
ld no
 Risk is characterized by 3 know t
!
factors
• Probability of bad outcome;
• Consequence of bad out
come;
• The economic cost of dealing
with bad outcomes; Would you take risk cheating during exam?
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 1. Risk and Decision Making

Environmental Risk
 Risk associate with
action or decision that is
directly affect the natural
environment;
 What are the risk of not treating
waste water?
Image: The Cambodia Daily
 Shall the treatment plant be
installed for the city? Free flow sewerage makes it way to nearby river/lack
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2. Risk Assessment, Risk Perception and Management

Risk Assessment​- a systematic process to evaluate risk pose by an

activities, a phenomena, or threat;
The purpose of risk assessment is to
identify which level of risk is acceptable,
or whether it is ok to accept the risk?

Environmental risk assessment is the

use of facts and assumptions to estimate the
probability of harm to people or the
environment from particular environmental Image: Change.org
conditions;
What is the environmental risk posed by this
road construction activities?
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 2. Risk Assessment, Risk Perception and Management

Risk perception​- how people feel about risk

posed by certain action or event; perception of risk
vary from person to person depend on individual
knowledge/ experience of risk.

i.e., Do you think you will get infected by Covid-19 if you

travel to Europe?

Environmental risk perception:

o There is always the discrepancy between
the scientific and public perceptions of
environmental risks;
o hazards truly affecting health status in
the country are not necessarily those
receiving the highest attention;
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2. Risk Assessment, Risk Perception and Management

Risk Management​- is a decision-making process that involves using the results of

risk assessment, weighing possible responses to the risk, and selecting appropriate actions
to minimize or eliminate the risk;

A risk management ​plan includes:

• Evaluating the scientific information regarding various kinds​of risks;
• Deciding how much risk is acceptable;
• Deciding which risks should be given the highest priority;
• Deciding where the greatest benefit would be realized by spending limited funds;
• Deciding how the plan will be enforced and monitored;
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 3. Environmental Economics

Economics is the study of how

people choose to use resources to
produce goods and services and how
goods and services are distributed to
the public.
Environmental economic – the
economics that concerns with environmental
issues
Can you tell which are the environmental parts, and
which are the economic part from this picture?
How does the environment affect economic?
How does economic activities affect the environment? Do you thing economic can be separated from the
environment?
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3. Environmental Economics

When we talk about economic, we talk about resource and it’s use!
 Resources in Economic standpoint – labor, capital, and land
o Labor - referred to as a human resource
o Capital is anything that enables the efficient production of goods and services;
o Land can be thought of as the natural resources;

 There are two type of Natural Resource:

o Renewable resource - an be formed or regenerated by natural processes in human
timescale i.e., Soil, vegetation, animals, air, and water….
o Non-renewable resource - are not replaced by natural processes, or the rate of
replacement is so slow as to be ineffective – i.e., iron ore, fossil fuels, and mountainous landscapes
Renewable resource can also be exhausted! 11
 3. Environmental Economics

Issues of Supply and Demand

• Supply: amount of a good or service people are
willing to sell at a given price;
• Demand: the amount of a good or service that
consumers are willing and able to buy at a given
price;
 Price of good/ service depend on the relationship
between Supply and Demand
Sometime after water festival in 2010, the price
 When demand exceeds supply, the price rises => of banana rose to about 20000 riels per piece,
while normal price during that time is around
alternatives option must be identify to lower demand; 2000 riels.

What can be the factor that affect price of food?

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3. Environmental Economics

Value of Natural resource and Ecosystem services

 Natural resources are structures and
processes that humans can use for their own
purposes but cannot create;
o We value natural resource based on
our perception of their relative scarcity,
rather than how it is useful for our lives;
o Resource such as land, water, air has
been considered as limitless resources;
o Renewable resource can turn into non-
renewable resource due to over
exploitation by human activity;

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3. Environmental Economics

Assigning Value to Natural resource and Ecosystem services

 Ecosystem services are beneficial effects of

functioning ecosystems for people and
society;
 Ecosystems services are not traded in
conventional markets; there is no price tag
for the service it provides;
 Economic price of the ecosystem is usually
inferred from people preference and The economic value of pollination services by
indirectly by the products its provide; honeybees and other animals is estimated to be about
$200 billion per year worldwide;

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 3. Environmental Economics

Environmental Costs – the cost of deterioting the environment

 Environmental costs are difficult to measure, since they are not

easily converted to monetary values;
 Deferred costs: the cost that are ignored, not recognized, or whose
effects accumulate over time, but that eventually must be paid ;
e.g., the cost of altering river flow for hydroelectric power;

 External costs: the cost that are borne by someone other than the
individuals who produce or consume a good or service;
e.g., cost of pollution due to hazardous waste produced by industries that are no
longer in business – the cost to clean up this waste become responsibility of government
and tax payer

 Opportunity costs: the cost that occur when a decision precludes

other potential uses for a resource;
e.g., if houses are built in a forested region, the land’s possible use as a natural area for
hiking or hunting is lost 15
3. Environmental Economics

What is the cost of converting a public

beach into industrial compound?

Is it differed cost?

Is it external cost?
Is it opportunity cost?

Koh Rong, Cambodian

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 3. Environmental Economics

The Economics of Pollution

 Pollution is any addition of matter or energy that degrades the
environment for humans and other organisms;

 The cost of controlling pollution can be divided into two kinds of

activities:
o Pollution costs are private or public expenditures to correct
pollution damage once pollution has occurred;
o Pollution-prevention costs are those incurred either in the
private sector or by government to prevent, either entirely or
partially, the pollution;

Examples of Pollution There are many kinds of pollution.

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Some are major health concerns, whereas others merely
 3. Environmental Economics

How Economic and Ecological Systems Differ

 It is difficult to match economic processes with environmental
resources; Because, economic systems and ecological systems
function are different in many aspects:

Ecosystem process Economic process

Time frame Ecosystem processes take place Time frame for market
over hundreds, thousands, or decisions is short;
even millions years;
The present of waste on the beach
may cause some economic loss due
Location Available by location and can not Transferable from place to place; to drop in tourist activities and will
be transferable from want place
to another (i.e., groundwater); be recovered soon after the beach is
clean; but the lose to ecosystem in
Units of Difficult to assigned exact Exact monetary value; this costal area might be greater and
measure monetary value;
take longer time frame;
Complexity Very complex Less complex

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 4.Using Economic Tools to Address Environmental issue

 Economic incentives is an effective method to encourage environmental

stewardship;
 Economic incentive can be done inform of: Polluted water from
1) Subsidies: government provide support (i.e., gift, low interest loan, tax textile industry
exemption..) to individual or private company that do not degrade the
environment to encourage them to participate in protecting the environment;
2) Market-Based Instruments: government use economic measure to regulate
company activities and consumer behavior
o Information programs: inform consumer and company which activities or product is
more economic for them (i.e., label electric consumption on electric appliance)
o Tradable emissions permits: give companies the right to emit specified quantities of
pollutants => company can sell their permission credit if they emit less then the
allowable rate;
o Emissions fees and taxes: Company has to pay additional fees and taxes if they
release polluted material into the environment;
o Deposit-refund programs: place a surcharge on the price of a product that is
Who should pay for the damage to
refunded when the used product is returned for reuse or recycling; (i.e.; in the US and
many EU country, government pays for those who return plastic bottle)
the environment due to this
o Performance bonds: Fees for environmental cleaning are collected from company in pollutant?
advance, and will be return to company when their performance meet environmental
standard; 19
 5. Economics and Sustainable Development

“ sustainable development is development that meets the

needs of the present without compromising the ability of future
generations to meet their own needs.” (Bruntland Commission, 1987)
 Five characteristics that defined sustainability according to founder of Earth Day,
Gaylord Nelson:
1) Renewability - The rate of consumption of renewable resources cannot exceed the rate of
regeneration;
2) Substitution - community should use renewable resources instead of nonrenewable resources;
3) Interdependence – Community must see themselves as part of the large ecosystem, their
development is sustainable only if the larger system is sustainable;
4) Adaptability – community must adapt to changes;
5) Institutional commitment - community must strictly follow the laws and political processes that
mandate sustainability;

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THANK YOU!
Danet HAK, PhD

Phone
012 867 507
Email
Hakdanet.fmse@puc.edu.kh