The Economy and the Environment
Course Teacher: Dr. A. R.
Sarker
Course:505
Environmental Economics and
Policy
Overview of the course
• This course envelops the inter-linkages between the environment and the economy.
• The aim of the course is to explore the economic basis of environmental issues and policies.
• Economic principles underlying environmental problems and policy remedies will be discussed.
• The emphasis of this course is on policy tools. We will address international issues, global environmental
concerns, and economic development.
What is environmental economics?
Environmental economics is the study of environmental problems with the perspective and analytical ideas of economics.
Economics is the study of how and why people—
whether they are consumers, firms, non-profit
organizations, or government agencies—make decisions about the use of valuable resources.
EE is the application of the principles of economics to the study of how environmental resources are managed
What is environmental economics?
• The study of environmental economics, like all
economics courses, is concerned with the fundamental issue of allocating scarce resources among competing uses. The concepts of scarcity, opportunity costs, trade- offs, marginal benefits, marginal costs, efficiency and equity are key ingredients to understanding
environmental problems and what can be done about them.
• What is different about environmental economics
compared to other economic subjects is the focus on how economic activities affect our natural
environment—the atmosphere, water, land, and an enormous variety of living species
What is environmental economics?
• The study of environmental economics, like all
economics courses, is concerned with the fundamental issue of allocating scarce resources among competing uses. The concepts of scarcity, opportunity costs, trade- offs, marginal benefits, marginal costs, efficiency and equity are key ingredients to understanding
environmental problems and what can be done about them.
• What is different about environmental economics
compared to other economic subjects is the focus on how economic activities affect our natural environment—the atmosphere, water, land, and an enormous variety of
living species
The economy and the environment
• Natural resource and environmental economics
• Renewable vs. nonrenewable resources
• Inter-temporal dimensions (trade offs between today and tomorrow)
• Assimilative capacity, the ability of the natural system to accept certain pollutants and render them benign or
inoffensive
The economy and the environment
The economy and the environment
• The economy has two broad segments:
producers and consumers
• The producers include all private firms that take inputs and convert them to outputs.
• The consumers include all of the private households to whom the vast collection of final goods and services are distributed
• Both production and consumption create
residuals- leftovers/waste product
The economy and the environment
• From physics, the law of conservation of matter assures that
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The economy and the environment
Ways of Reducing the Flow of Residual Wastes into the Environment
To reduce the mass of residuals disposed of in the natural environment, the quantity of natural
capital inputs taken into the economic system must be reduced.
The economy and the environment
There are essentially three ways of reducing the use of raw materials/inputs and,
therefore, residuals discharged into the natural environment:
1. Reduce the quantity of goods and services produced
Through ZPG as population growth will often exacerbate the environmental impacts of a particular economy
However, a stationary population can also gradually degrade the environment in the long run
The economy and the environment
There are essentially three ways of reducing the use of raw materials/inputs and, therefore, residuals discharged into the natural environment:
2. Reduce the residuals from production (per unit of output)
– Invent and adopt new production technology – Pollution prevention
– To shift the composition of output (from high residual items to low residuals items) – Environmentally friendly goods pollution-intensive goods
The economy and the environment
There are essentially three ways of reducing the use of raw materials/inputs and, therefore, residuals discharged into the natural environment:
3. Increase recycling
Instead of discharging production and consumption residuals into the environment, we can recycle them back into the production process
This can reduce the quantity of residuals discharged while maintaining the rate of output of goods and services
However, recycling can never be perfect and recycling processes themselves can create residuals
The economy and the environment
Our ultimate goal is to reduce the damages caused by the discharge of production and consumption residuals
These fundamental relationships are very important.
The economy and the environment
Terminology
Ambient quality: “Ambient” refers to the surrounding environment, so ambient quality refers to the quantity of pollutants in the environment; for example, the concentration of SO2 in the air over a city
Environmental quality: A term used to refer broadly to the state of the natural environment Residuals: Material that is left over after something has been produced. It could be from
both production and consumption
Emissions: The portion of production or consumption residuals that are placed in the environment
The economy and the environment
Terminology
Recycling: The process of returning some or all of the production or consumption residuals to be used again in production or consumption.
Pollutant: A substance, energy form, or action that, when introduced into the natural environment, results in a lowering of the ambient quality level
Effluent: Sometimes the term “effluent” is used to describe water pollutants, and
“emissions” to refer to air pollutants, but in this book these two words will be used interchangeably.
The economy and the environment
Terminology
Pollution: “Pollution” is actually a tricky word to define. No matter how small, of a residual has been introduced into the environment When the ambient quality of the environment has been degraded.
Damages: The negative impacts produced by environmental pollution Environmental medium: Broad dimensions of the natural world that
collectively constitute the environment, usually classified as land, water, and air.
