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Environmental management
Introduction
Using, conserving and enhancing the community’s resources so that ecological processes, on which life depends, are maintained
and the total quality of life now and into the future can be improved
There are five principles of ecologically sustainable development
o Integration of economic and environmental goals in policy and activities
o Appropriate valuing of environmental assets must occur, otherwise they are considered to be ‘free’
o Providing equity within and between generations
o Recognition of the global dimension
o Dealing cautiously with risk and irreversibility
Comprised of three intertwining components; economic prosperity, social equity, environmental health
Major national, global issue
o Increase in weight in gov policy (eg Carbon Trading Scheme)
o Increase in international pressures, agreements (eg Kyoto Protocol)
o Due to increase in publicity pertaining to global warming
Implies a trade off bw economic growth, environmental quality, future quality of life
o Due to consequences of economic growth
Increase in material welfare
Increase in current quality of life (eg increase in net income, consumption)
Increase in overall productive capacity of economy
Greater than proportional decrease in environmental quality
Increase in exploitation of natural R
o Depletion of NRR used in production
o Pollution of air/water/soil by by-products of industrial activity
Decrease in future quality of life
o Eg decrease in health standards, overall utility
Decrease in overall productive capacity of economy
o Government policy aims to achieve a sustainable level of EG with minimal environmental degradation
Without reduction to potential future growth, with intergenerational equity
Integrated into federal policy since 1989
Eg Australia’s National Strategy on ESD (1992), core objectives include;
o Enhance individual, community well-being, welfare for current, future populations
o Provide equity within, between generations
o Protect biological diversity, maintain essential ecological processes, life support systems
o Illustrated explanation
Economy exists on curve A
Point 1: higher rate of economic growth, lower environmental quality
o Opportunity cost of lower environmental quality in future
Point 2: lower rate of economic growth, higher environmental quality
o Opportunity cost of lower current quality of life
PPF shifts outward to B
Due to increase in technology, increase in productivity in use of natural R
Point 1 to point 3: unchanged economic growth, increase in environmental quality (ESD)
Point 1 to point 4: increase in economic growth, unchanged environmental quality (EunSD)
PPF shifts inward to C due to decrease in R due to depletion
Long term effect of ecologically unsustainable development
Interaction of the economy, natural environment
o Eg households, firms, environment
Main flows include;
Environmental inputs (eg air, water, soil, forests, climate, fish)
o Used in production, consumption, recreation
o From environment to households, firms
Biodegradable, non-biodegradable waste
o Produced by production, consumption, recreation
o May cause pollution
o From households, firms to environment
Amenities
o Eg beautiful landscapes, beaches, harbours, forests, lakes
o Used for recreation, leisure
Anthropocentric system; focus is on how humans can use, exploit natural resources
Cost-benefit analysis
o An analytic tool used to make decisions about specific cases, projects or environmental policy matters by assisting in
the evaluation of competing alternatives
Used to identify, evaluate alternatives according to private, social costs, benefits
o Steps include:
Identify competing uses
Identify private and social costs and benefits of each alternative
Value costs and benefits
May involve:
o Consideration of opportunity cost (eg define value of a forest by value of trees for timber)
o Consideration of net present value
The sum of present values of the benefits of a proposal
Calculate value of net benefit to society for each alternative
Rank alternatives in order of preference
Market failure occurs when the price mechanism takes account of private benefits and costs of production to consumers and
producers, but it fails to take into account indirect (social) costs eg damage to the environment
o Private costs refer to the expenditure incurred by producers in using resources to produce output, or the cost incurred
by consumers in giving up a part of their real Y in buying g/s
o Private benefits refer to the profits made by producers in selling g/s, and the utility gained by consumers from
consuming g/s to satisfy needs, wants
o Social costs refer to the costs imposed on or borne by society as a result of private actions
Eg excessive private production of industrial output
Reduced quality of air, soil and water
Defined as negative externalities
o An unintended negative consequence of private action
Eg excessive private consumer of fast food, tobacco or alcohol
Increased strain on health system
Market failure may occur where:
o Property rights are not clearly defined
A property right is the right to own and dispose of property and g/s flowing from the use of the property
Difficult to create a market for environmental benefits (eg attractive scenery, diversity of flora/fauna)
o All costs, benefits are not accounted for in the market price or externalities occur
o Consumers, producers lack information about the consequences of their actions or information gaps occur
Eg ignorance of health impacts of toxic substances in the food choice, risks of genetic engineering to natural
and agricultural populations, impact of noise pollution of health of community, social harmony
o The non-use values (existence, option, intergenerational) of a g/s are not accounted for in the market price
The price mechanism fails to account for;
o Additional social, environmental costs
Market price of output is not reflective of true cost of environmental R used to produce it
Eg cost of table is not reflective of cost of deforestation
o Future economic growth, D for g/s
Depletion, contamination of R may restrain this
Implications
o Market may account for some environmental resources
Eg depleted resources
Applies to resources sold in markets
Supply is limited; this drives up the price of the good and reduces the demand for the good
o Market does not account for some environmental resources
Eg clean air and water
Applies to resources not sold in markets
Property rights are ambiguous or absent
Property rights give individuals/groups exclusive right of usage, ownership over certain resources
o Essential to the function of the price mechanism
o Effectiveness is exhibited by 3 important features;
Excludability
The owner of a property right has the right to exclude others from
enjoying the benefits of using the property
Transferability
Property rights may be bought or sold
It is in the interest of the owner to maintain, improve property
Enforceability
Property rights are legally binding
Those who violate others’ property rights will be penalised
This creates the ‘tragedy of the commons’
o A situation where the failure of the market to assign costs to individuals leads to an
overuse of resources which have no single owner
o Negative implications; over-exploitation, depletion, contamination of resources
o Due to an inability to assign costs to individuals
Reserves of resources are too large to divide into smaller groupings
o Eg over exploitation of marine resources
Implications; reduction to biodiversity, extinction of some species
Private goods
o A good that is rival and excludable in consumption
o Private goods are excludable
The benefits of the good are restricted to the individual who is willing/able to pay for it
o Private goods are rival
The good is consumed, no longer available for consumption by anyone else in the market
o Eg sale of cake
This is excludable; enjoyment through the consumption of the cake is restricted to the consumer
This is rival; once the cake is consumed, it is not available for consumption by anyone else
o Food, clothes, property, etc.
Public goods
o A good that is non-rival and non-excludable in consumption
o Public goods are non-excludable
The benefits of the good cannot be restricted to an individual due to the nature of its supply
o Public goods are non-rival
An individual’s consumption of the good does not preclude another’s consumption of the good
o Implications; not suitable for supply in private markets
Eg no producer would be willing to provide a non-excludable, non-rival good
Supplied by local, state, federal governments
o Eg gov undertakes policy to reduce air pollution
This is non-excludable; the benefits of cleaner air cannot be restricted
This is non-rival; an individual’s consumption of cleaner air will not preclude another’s consumption
National defence, police force, emergency services, etc.
Free riding
o The act of benefiting from a good without contributing to the cost of supplying the good
o An implication of market failure
o Applies to public goods where contribution to payment is voluntary
This is countered by compulsory taxes enforced by government
o Implications
Less than optimal or efficient level of supply due to strong demand, reliance on voluntary contribution
May prevent market from developing due to refusal of contribution to payment by free-riders
Market failure occurs where the price mechanism fails to take into account the non-use value of certain goods
o Non use value
Refers to the value of resources apart from current consumption
Examples of non use values
Existence value; the benefit obtained simply from the knowledge that the resource is in existence
(eg one may benefit from the protection of whales where one does not wish to consume them)
Option value; the benefit obtained by the option of utilising the resource in the future (eg one may
benefit from the protection of oil for future use in production)
Bequest/intergenerational value; the benefit of the current generation by preserving the
environment for use by future generations (eg one may benefit from the protection of rainforests
for use by future generations)
Issues
Preservation of natural environments
Pollution control
The control of pollution
Externalities
Market failure occurs when the price mechanism takes account of private benefits and costs of production to consumers and
producers, but it fails to take into account indirect (social) costs
o The actions of individuals affect others not directly involved in the market
Eg a person driving a car creates noise, air pollution
The impact of this is not included in the cost of the car
The impact of this is negative, on a non-consenting third party, not involved in the original
transaction of the good
o Eg the community experiences a reduction to air, sound quality
o Creates inefficient allocation of natural resources
As market price does not reflect true price
Externalities are unintended advantageous or disadvantageous consequences of private actions
o External effects or ‘spill over’ effects
o Total cost, benefit of transaction of good is not accounted for in original cost of good
May implicate a misallocation of goods
o May be harmful or beneficial
Harmful; negative externality or external diseconomy
Beneficial; positive externality or external economy
o May affect consumption or production of goods
Effect of a negative externality
o Equilibrium market price, quantity for leaded petrol is denoted by P, Q
Intersection of marginal private cost (MPC) curve, marginal private benefit (MPB) curve
o Equilibrium true cost, quantity for leaded petrol is denoted by P, Q
Intersection of marginal social cost (MSC) curve, marginal private benefit (MPB) curve
Not reflected by marginal private cost curve
Due to social cost of pollution produced by the petrol
Market price at true cost would signify a more efficient allocation of resources
Reduction to quantity produced reduces total pollution
Increase in price covers cost of servicing pollution
Refers to the exploitation of renewable and non-renewable resources to a threatened or exhausted extent
Non-renewable resources
o Refer to those natural resources that are in limited supply because they can only be replenished over a long period of
time, or cannot be replenished at all
Those that cannot be sustained with increasing usage
Supply is finite and may be exhausted
o Eg fossil fuels (coal, crude oil, natural gas)
o Technological advancements may implicate;
Increased capacity for recycling
Reduced dependence on non-renewable resources
Through the development of alternatives
Increased productivity of the resource
Increased access to reserves, discovery of new resources
May augment existing supply
Renewable resources
o Refer to those natural resources that can naturally regenerate or replace themselves in a relatively short period of time
Those that can be sustained despite usage
Supply is unlimited but may become finite or exhausted through overuse
Eg may become non-renewable resources
May yield renewable resource flow
Eg crops from farmland
o Eg biological resources (plants, animals, trees)
o Sustainability is a key issue
Renewable resources may be non-renewable through over-exploitation through unsustainable management
Implications; reduced access to resources for future generations
Activities to reduce resource depletion
o Sustainable use, management of resources
Through estimated optimal use of resources over time1
Calculated for renewable resources
o Determination of a threshold exploitation level
Optimal level at which resource may regenerate
Calculated for non-renewable resources
o Determination of a suitable rate of decline
Challenging due to ignorance of existing quantity, needs of future generations