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14 views18 pages

Lec 1 Unit1 - Eco - Env

Uploaded by

dhruveshbhure9999
Copyright
© © All Rights Reserved
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HS 229: Environmental

Economics

Mrinal Kanti Dutta (mkdutta@iitg.ac.in)


Dept. of Humanities and Social Sciences, IIT Guwhati
The Economy and the Environment

2
Environmental Economics

 Concerned with the impact of economy on


environment, significance of the environment to the
economy, and the appropriate way of regulating
economic activity for achieving balance among
environmental, economic and other social goals

 Essence of environmental problem is the economy -


producer behaviour and consumer
3
desires
The Economy and the Environment
 Economy: Population of economic agents, the institutions
they form (firms, government) and the interlinkages
between agents and institutions (markets)
 All the firms that make up industry
 Environment: the biosphere, the atmosphere, all flora and
fauna
 Includes life forms, energy and material resources, the
stratosphere and troposphere
 All natural resources, including land, land cover and
ecosystems
4
The Economy and the Environment
 The constituent parts of environment interact with each other
 Effects of human activity on the environment, and the
consequences of these affects on human well being
 Generation of electricity
 Agricultural support policy

 The economy operates from inside the environmental system,


with conditions in the two systems being simultaneously
determined
 Many links between the two systems

5
Economy-Environment Interaction
R1 Goods and Services
R2

Production Consumption
Factors of Production

E1:
Energy and E2: Waste Sink
Materials

E3: Amenity

E4: Global Life Support Services 6


Linkage between the Economy and the
Environment
 Environment provides inputs of raw materials and energy
sources
 Waste sink for the economy
 Direct source of amenity to the environment
 Basic life support services
 Climate regulation, operation of water cycle, regulation
of atmospheric composition and nutrient cycling
7
Role of Environment as a Waste Sink
 May result from production or consumption
 In some cases, wastes are biologically or
chemically processed
 ‘Assimilative capacity’ for the wastes
 For some inputs, no natural process to transform
them into harmless substances
 Cumulative and conservative pollutants
 Examples- Metals, DDTs, PCBs
8
Role of Environment as a Waste Sink
 For cumulative pollutants, the stock in any period t* is-
t=t*
St*c = ∑Ft----------------------› (2)
to
Ft= Flow of pollutants

 For degradable pollutants, the stock in any time period ‘t’


is given by-
Sta = Ft–At----------------------› (1)
A=Amount assimilated in 9 any period
Role of Environment as Amenity Provider
 Amenities - the economic value

 Economic value dependent on social well-being

 Social welfare is the sum total of individual utilities


Uj= U(X1,X2,…,Xn; Q1,Q2,….,Qm)
Uj=Utility; X=Goods and services; Q= Env. Assets

 Trade off between different uses of the environment


10
Role of Environment as Amenity Provider
 If Uj= U(X1,X2,…,Xn; Q1,Q2,….,Qm)
Uj=Utility; X=Goods and services; Q= Env. Assets
 Let Q1 be local air quality, Q2: Water Quality,…..
 X1: consumption of services provided by owning a car
 An increase in consumption of car services increases utility
(δUj/δX1>0)
 But this increase in car use decreases air quality (δQ1/δX1<0)
 This fall in air quality reduces utility by an amount
(δUj/δQ1*δQ1/δX1)
 The net effect is thus ambiguous
11
Conflicts in Resource Use/Trade-offs
 Using a mountain region for extracting minerals versus
using for amenities
 Using a river as a waste-disposal unit and provider of
amenity
 Felling a forest for timber and electricity generating
capacity of a dam
 Preserving a wetland for its aesthetic qualities and
availability of drained land for agriculture
 An increase in the use of environment as a waste sink
may reduce the ability to supply basic life support
12
Conflicts in Resource Use/Trade-offs

 Environment is a scarce resource- many conflicting


demands placed on it
 Relative vs. absolute scarcity
 Absolute scarcity from economic growth

 Role of economics and price system


 Market (Success/Failure)

13
Global Life Support Services
 Maintenance of an atmospheric composition suitable for
life

 Maintenance of temperature and climate

 Recycling of water and nutrients


 Hydrological, carbon and oxygen cycles

14
The First Law of Thermodynamics:
Materials Balance Principle
“Matter, like energy, can neither be created nor be
destroyed”

Implications:
 As more matter is extracted by the production process,
more waste is generated
 Puts limits on the degree to which resources can be
substituted
15
The Second Law of Thermodynamics:
Entropy Law
“In a closed system, the use of matter-energy causes a one
way flow from low entropy resources to high entropy
resources; from order to disorder.”

Implications:
 Energy can not be recycled in such a way that we get
back all the capacity of the original energy source
 Helps in understanding the limits of matter-energy
recycling
16
Texts:
N. Hanley, J. F. Shogren and B. White, An Introduction to
Environmental Economics, Oxford University Press, 2001

N. Hanley, J. F. Shogren and B. White, Environmental


Economics: In Theory & Practice, 2nd Revised edition,
Palgrave MacMillan, 2006
17
THANK YOU!

18

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