Chapter 22Economics, Public Policy,

and the Environment

Copyright © 2008 Pearson Prentice Hall, Inc.

22.1 - Economics and Public Policy

• The need for environmental public policy• Promote the common good• Improvement of human welfare• Protection of the natural world

Economic Systems: Centrally Planned Economy

• Characteristic of socialist countries• Ruling class makes all decisions• Equity and efficiency theoretically achievable• Former Soviet Union was an example• North Korea and People’s Republic

of China last current holdouts

Economic Systems: Free Market Economy

• Driven by supply and demand• Market driven• Easily manipulated • Only offer free access to goods and

services not based on ability to pay• Developed countries

Classical View of Economic Activity

22.2 - Resources and the Wealth of Nations

• Economic production is the process of converting the natural world into a manufactured world.

•Example: trees to paper to trash

•Natural capital = ecosystems and mineral resources = a major element in the wealth of nations (see Fig. 22-3)

Environmental View of Economic Activity

The Wealth of Nations

• Produced capital: human-made things• Natural capital: goods and services

supplied by natural ecosystems• Renewable• Nonrenewable • Subject to depletion

The Wealth of Nations•Intangible capital

•Human: physical, psychological, and cultural attributes •Social: governments, the rule of law, civil liberties•Knowledge assets: codified and written fund of knowledge

Gross National Product

GNP = sum of all goods and servicesproduced in a country in a given timeframe.

Shortcomings of Gross National Product (GNP)

• GNP does not account for depreciation of natural capital - why?

• Environmental accounting = putting environmental assets and services into monetary units.

Resource Distribution• Essential conditions for achieving equity

in the distribution of resources• A well-developed body of law• Honest legal system• Inclusiveness• Broad civic participation• Free press

Intergenerational Equity

• Meeting the needs of the present without compromising the ability of future generations to meet their needs.

Examples of Intergenerational Equity? (True or False)

• Let future generations cope with global climate change

• Cut all the trees and sell the timber today

• Hold on to the trees for a better price in the future

• Give up short-term gains for sustainable long-term harvests

False

False

True

True

22.3 - The Policy Life Cycle

Recognition Stage

Rachael Carson1962 Silent Spring

• Low in political weight• Media have popularized the policy• Dissension is high

Formulation Stage

• Rapidly increasing public weight• Media coverage is high• Debate about policy options occurs

Implementation Stage• Real political and economic costs of a

policy are exacted•Public concern and political weight are

declining•Issue not very interesting to media

Control Stage

• Policies broadly supported• The environment is improving• Regulations may become more simplified

Environmental Problems in the Policy Life Cycle

Economic Effects of Environmental Public Policy

• Attributes of the best policies (Three “E’s”)• Effectiveness• Efficiency• Equity

Economic Effects of Environmental Public Policy

• Costs of policies: real or subsidized costs? Who really pays for access to public resources?

• Impact on the economy…

States and nations with the strictest environmental regulations have the highest rates of job growth andeconomic returns.

Cattle Grazing on BLM-managed Land

Timber Harvesting in Olympia National Forest

Impact of Environmental Policy on the Economy

• Transfers wealth from polluters to pollution controllers

• Led to the creation of an environmental protection industry as major GNP participant

• Great for the economy

Policy Options: Market or Regulatory?

• Objective of Environmental Policy

To change the behavior of polluters and resource usersas to benefit public welfareand the environment!

How Can Corporations Respond?

• Meet consumers’ demand for sustainable products and services

• Ecolabeling - Tells consumers which brands are made with processes that do not harm the environment

How Can Corporations Respond?

• Industries, businesses, and corporations can make money by “greening” their operations

-Local sustainably oriented businesses are being started

-Large corporations are riding the “green wave” of consumer preference for sustainable products (ex: Nike, Gap, Wal-Mart, etc.)

What is “GREENWASHING”?Consumers are misled into believing companies are acting sustainably!!

Greenwashing

22.4 - Benefit-cost Analysis

• Benefit-cost analysis (or cost-benefit) of environmental regulations builds efficiency into policy so that society does not have to pay more than necessary for a given level of environmental control.

External and Internal Costs• External bad: cost of adverse health from pollution• External good: benefits from improved job performance in pollution-free work environment

Pollution control strategies generally demand high initial costs.

Benefits negligible in the short-term.

Cost-effectiveness Analysis

• Significant benefit may be achieved by modest degrees of cleanup in the short-term.

• Reducing level of pollutant below threshold levels will not yield observable improvement

Progress• Total emissions of six principal air

pollutants since 1970 (-53%)• Lead in the blood of children since 1976

(-85%) • Between 1988 and 2004, release of toxic

chemicals (-68%)• Increase in states with safe drinking

water from 79% in 1993 to 94% in 2002

• Toxic air emissions since 1990 (-24%)

Progress• > 333,000 underground storage tanks

cleaned up since 1990• Since 1980, 975 out of 1,450 Superfund

sites completely cleaned up• Recycling of MSW increased from 7% in

1970 to 30% in 2003

22.5 - Politics and the Environment

• Typically Democrats pro-environment, but not always. Some Republicans, like Schwarzenegger, were very pro env.• Environmental policy “hurts the economy” – NOT True• Big business often hires lobbyists to influence politicians.• Bush Admin. not a friend to the environment.

• Ex. scientists were muzzled or censored

Citizen Involvement • Become involved in local environmental

problems• Join an environmental NGO• Inform legislators that you support

particular environmental policies• Watch how politicians react to

environmental policies• Stay informed