Unit 5 (Full) - Environmental Economics

UNIT 5 – ENVIRONMENTAL ECONOMICS
INTERNATIONAL DEVELOPMENT INSTITUTIONS
The major international development institutions are working to develop a

common set of international development goals. The institutions are
1. The United Nations (UN)

2. Organization for Economic Co-operation and Development (OECD)
3. International Monetary Fund (IMF)
There are seven broadly agreed goals that focus on key aspects of human wellbeing
• poverty reduction
• education
• gender equality
• health and
• sustainable development
The goals are
• Eradicate poverty and hunger

• Achieve universal primary education
• Reach gender equality and empower women
• Reduce child mortality
• Improve maternal health
• Combat HIV/AIDS, malaria, and other diseases
• Ensure environmental sustainability
To monitor progress toward the environmental sustainability goal, there are three
indicator targets:
1. integrating the principles of sustainable development into country

policies and programs and reversing the loss of environmental resources
2. the proportion of people without sustainable access to safe drinking water
and
3. achieving a significant improvement in the lives of at least 100 million
slum dwellers.
Indicators of sustainable development
• Genuine Savings - Change in total wealth, accounting for resource depletion

and environmental damage.
• Genuine Progress Indicator and Index of Sustainable Economic Welfare.
• Living Planet Index (WWF) - An assessment of the populations of animal
species in forest, freshwater, and marine environments.
• Environmental Sustainability Index (World Economic Forum) - An
aggregate index spanning 22 major factors that contribute to environmental
sustainability.
• UN System of Environmental and Economic Accounts - A framework for
environmental accounting.
• Resource Flows (World Resources Institute). Total material flows
underpinning economic processes.
Three links between environment and development
The key environmental concerns are associated with three broad aspects.
1. Quality of life especially with respect to the livelihoods, health, and

vulnerability of the poor
2. Quality of growth
3. Quality of the regional and global commons.
Global environmental issues
fall into one of two categories
1) maintenance of major components of Earth’s systems, include:
• Climate change
• Ozone depletion
• Accumulation of persistent organic pollutants (POPs)
• Loss of certain biodiversity elements, such as migratory species that
cross national borders and globally important genetic resources.
2) Natural resource degradation at the global scale
• Degradation of international waters and marine ecosystems.

• Land degradation and desertification.
• Degradation and loss of forest resources.
POVERTY
Poverty is a state or situation in which a person or a group of people don't have

enough money or the basic things they need to live.
Poverty means the state of one with insufficient resources.
Poverty circle (fig)
Causes of poverty
• Inequality and marginalization

• Hunger, malnutrition & stunting
• Poor health care systems
• Little or no access to clean water, sanitation and hygiene
• Lack of education
• Poor infrastructure etc…
Effects of poverty
• Homelessness
• Substandard living
• Inadequate child care
• Unsafe neighborhoods
• Under resourced schools
Types of poverty
• Cyclical poverty
• Collective poverty
• Concentrated collective poverty
• Case poverty
Cyclical poverty
• poverty that may be widespread throughout a population.

• occurrence is of limited duration.
• Eg: mass unemployment during periods of depression
Collective poverty
• Temporary & widespread

• permanent insufficiency of means to basic needs.
• related to economic underdevelopment.
Concentrated collective poverty
• Visible in developed countries.

• economic traits are unemployment and underemployment, unskilled
occupations, and job instability.
Case poverty
• inability of an individual or family to secure basic needs.
• Example: person be physically or emotionally disabled, or chronically ill.
Poverty and the Natural Environment
Poverty and the environment are directly connected in their influence and impact
on people’s lives.
Three important ways nature touches poverty are through:
1) Deforestation
2) Water pollution
3) Air quality
1) Deforestation
• The removal of or clearance of forest, affects billions of people worldwide.

• Trees and vegetation add nutrients to the soil.
• Unbalanced, nutrient deficient soil makes farming more difficult.
• Crop and food production suffers, hurting farmers’ ability to earn income
and provide for their families.
2)Water pollution
• Water pollution occurs when any harmful substance contaminates a water

system and the ecosystem flowing through it.
• Contaminated water and poor sanitation can also transmit diseases such as
diarrhea, dengue fever, cholera, dysentery, hepatitis A, typhoid and polio.
3) Air Quality
• The World Health Organization (WHO) declared people living in low- and
middle-income countries breathe air containing high level of pollutants.
• cause problems such as heart disease, lung cancer and respiratory diseases
such as emphysema.
ENVIRONMENTAL ECONOMICS
Environmental economics is the subset of economics which deals with the

integration of economics and ecology.
It applies the principles of economics to solve environmental issues.
It focuses on
• efficient allocation
• optimal pricing
• economic efficiency
• consumer surplus and
• equity.
Resource economics uses economic principles to manage naturally occurring

resources for the need of population with efficiency.
Environmental and natural resource economics helps to tackle
• pollution of air, water, and soil

• tropical deforestation
• loss of biodiversity
• oil crisis & energy crisis
• loss of habitat of all types
• global warming and climate impacts
• over-population
• resource shortage and impacts.
Inter-linkages between Economy and Environment
• Material Balance Model

• The Environmental Kuznets Curve (EKC)
Material Balance Model
• Material and energy are drawn from environment for the production and
consumption activities in an economy.
• It follows the Second Law of Thermodynamics ‘Entropy Law - Loss of
energy while transferring from one form to the other.
• While transferring raw materials and energy from environment to the
industries, there is change of quality and energy.
The Environmental Kuznets Curve
• Living standard of people can change carrying capacity of a particular area.

• Environmental impact and economy relationship is an inverted U-shape or
bell shape.
• Higher economic growth will ultimately lead to environmental
improvement.
Relation of economic development & environmental economics

• Technological process
• Behavior change
• Lewies growth model
• The scale effect
• The composition effect
• The technical effect
Elements of Economic Environment
It has 5 components
• Economic condition
• Economic system
• Economic policy
• International economic development
• Economic legislations
Economic Criteria for Policy Evaluation
1) Efficiency -- the social benefit minus the social cost of a regulation is as large
as possible.
2) Cost-effectiveness -- an environmental target is reached at least cost. If a policy
is efficient, it must also be cost-effective.
3) Fairness – distribution of cost and benefits among income classes, races,
geographical locations, industries, etc…
4) Incentives for innovation -- motivate to look for better ways to control
emissions and to motivate victims to look for ways to protect themselves.
5) Enforceability -- Policies that are easier to enforce are preferred.

Unit 5 (Full) - Environmental Economics

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UNIT 5 – ENVIRONMENTAL ECONOMICS

INTERNATIONAL DEVELOPMENT INSTITUTIONS

The major international development institutions are working to develop a

1. The United Nations (UN)

The goals are

• Eradicate poverty and hunger

1. integrating the principles of sustainable development into country

Indicators of sustainable development

• Genuine Savings - Change in total wealth, accounting for resource depletion

Three links between environment and development

1. Quality of life especially with respect to the livelihoods, health, and

Global environmental issues

fall into one of two categories

1) maintenance of major components of Earth’s systems, include:

2) Natural resource degradation at the global scale

• Degradation of international waters and marine ecosystems.

Poverty is a state or situation in which a person or a group of people don't have

Poverty means the state of one with insufficient resources.

Poverty circle (fig)

• Inequality and marginalization

• poverty that may be widespread throughout a population.

• Temporary & widespread

Concentrated collective poverty

• Visible in developed countries.

Poverty and the Natural Environment

Three important ways nature touches poverty are through:

• The removal of or clearance of forest, affects billions of people worldwide.

• Water pollution occurs when any harmful substance contaminates a water

Environmental economics is the subset of economics which deals with the

It applies the principles of economics to solve environmental issues.

Resource economics uses economic principles to manage naturally occurring

Environmental and natural resource economics helps to tackle

• pollution of air, water, and soil

Inter-linkages between Economy and Environment

• Material Balance Model

Material Balance Model

The Environmental Kuznets Curve

• Living standard of people can change carrying capacity of a particular area.

Relation of economic development & environmental economics

Elements of Economic Environment

Economic Criteria for Policy Evaluation

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