Economic Issues Regarding the Environment - Term Paper Example

Environmental Economics al Affiliation An essential process towards achievement of sustainable and cleaner environment is through economically managing the available natural resources. This essay explains various relationships that exist between the environment and the people. Initially, environmental pollution was very minimal because the population of people was still small. However, currently, the population has increased tremendously leading to increase in demands; in the quest to meet their own desires, human beings have explored existing resources causing various damages. This paper has unveiled varying economic issues regarding the environment; it addresses different issues that can be adopted so as to reduce pollution. Although naturally through the theories of thermodynamics, some forms of energy may not be used after their generation, but by adopting greener economy, environmental energy can be conserved. Through cost benefit analysis, it’s clear that imposing some taxation on environmental pollution will help regulate the amount of emissions into the environment. It may also be concluded that sufficient problem solving techniques on environmental challenges are very essential, especially for both the developed and developing nations. Keywords: Environment, Emissions, Pollution, Economics Introduction Environmental economics is a branch of economics designed to deal with environmental issues and act in response to the growing scarcity of environmental resources. The advantage of applying economics on environmental issues is to ensure that there is a balance between costs and benefits of environmental measures. The role of an economist in an environment is to particularly compare the actual given allocation criterion with social optimality. If after an analysis, the environmental criterion is found to differ from the optimum, an economist is taken to task to address the correction mechanism and restore the balance. Existence of an environmental issue causes an off balance between the market and optimum; this phenomenon is most felt in what Biswas terms as a concept of externality, which means that some effects of an event are not considered in its cost (2007). For instance when a recreational facility is used in an excess, exceeding the price cost, then it leads to environmental degradation. The global economy has risen since the inception of globalization in the late 20th century. The global economy has brought about many developments through technology and borderless trades with increased capital flows. Such growth has caused a lot of improvement in health sectors, living conditions, literacy eradication and reduction in mortality rates (Adjaye, 2005). As the economy improves, the world population has also risen introducing several challenges to development. First is existence in poverty disparities and wealth distribution across many countries, especially the developing nations. The rapid increase in population has impacted serious issues to the physical environment. For instance, the need for increased land for agricultural produce has caused deforestation and other forms of pollution. This is where environmental economics comes in, as it plays a vital role to solve the global and local environmental issues; it provides a well-balanced choice due to limited finance and natural resource (Adjaye, 2005). Due to an increased concern about the environment, the need for a sustainable development has increased as well. In many cases, any developmental policy is based on economics. Unfortunately, it appears that most economical models have ignored the role of economic systems. However, Adjaye suggests that “in order to make effective plans for sustainable development, there is the need to consider the interactions of the environmental and economic systems” (2005, p .9). The Concept of Externality This concept has been put in place to further define the environment to include water, air and land and to show that there are relationships that exist between them (Sankar, n.d.). Externality is core concept to environmental economics. Externality is when an activity is undertaken, but some of its effects are not duly considered. When a resource is exploited, the resource generates externalities that are not reflected in the market transaction (Koomey & Krause, 1997). This causes market failures and it results in inefficiencies. In this case, the inefficiency is caused by the pollution. Externalities have solutions that are associated with them, such as: Better defined property rights: An optimal solution is achieved when a property right is assigned and there is price associated with it. This policy applies best if the negotiating parties are limited. For instance, in a situation of a factory, the factory is associated with pollution which will affect the people around, as well as the environment. Therefore, if there is price associated with it, say the factory is supposed to pay the surrounding people for the effects caused by the pollution or the people pay the factory so as not to pollute the environment. In either case, associated prices to environmental pollution will create a sense of responsibility to those concerned and therefore in the long run, there is environmental conservation. Introducing taxes on pollution: If taxes and tariffs are introduced and increased to a significant value, they will discourage environmental pollution. This means that for pollution to occur, it would be in a situation whereby the production level is so high that it would compensate for the taxes paid; at such level, the society benefits. It has been suggested by many that government should exercise a shift in taxation from the normal tax on sales and income to taxation on pollution. Biswas refers this kind of taxation as “a green tax shift” (2007, p. 3). Pollution Quotas: This pollution reduction method suggests that to reduce pollution, tradable emission permits should be introduced. Such a system would ensure that there is reduction of pollution at a very low cost. If such a method is adopted, an organization would opt for its own pollution reduction mechanism, rather than paying a different firm to do similar work of pollution reduction. This method is said to already exist and has brought positive results in America, for example the sulphur dioxide trading programme (Biswas, 2007). Introduction of environmental regulations: Here, an economic regulator is put in place. This is done through the use of cost benefit analysis, and the regulator is in such a way that there is a set threshold for pollution; beyond this level there is some cost associated with it. Legislation has to be enacted that would see that this method is enforced and act as a monitoring system. With this system, there is variation on the threshold depending on the size of the company. Sustainable Development Economic growth defined through a gross domestic product is commonly a preferred outcome, but usually has an implication on the environment. Sustainable development is all that is desired as it manages the resources for the purpose of long term quality and availability; “its means of achieving a suitable balance between an economic growth and preservation of natural resources” (Callan & Thomas, 2012, p. 13). Society and economists have in the recent past came to concede the facts of natural environment. Sustainable development requires a responsible society and policy implementation. It also calls for political and economic decision. In 2009, the European Union Commission adopted a review on sustainable development strategy to streamline various range of developmental policies; as such, the European Union has taken the lead in protecting the climate changes through restructuring of economic and social structures (European Commission, 2014). There are many uncertainties regarding the environmental problems. These doubts are critical to policy design and evaluation; they can be categorized as follows: Nonlinearity: This is one of the categories of environmental complications whereby the cost and benefits could be nonlinear; by so saying, the spoils so caused by various sources of pollution like water, air and CHG emissions do not have a linear increment with the intensity of pollution. The effects could only be observable for low heights of emissions, but the level could rise to severity if threshold is reached. Similarly, the cost of pollution abatement varies depending on the level of abatement. Due to these variations, one cannot simply predict the cost and benefit or the point with which the damage would be catastrophic. For instance, one cannot estimate or tell when overfishing or destruction of habitats would lead to the collapse or extinction of the fish or animals; with this difficulty, it remains uncertain when and how to decide on the critical timing and designs of policy (Pindyck, 2006). The issue of irreversibility: This is another instance of environmental complications regarding environmental policies. Phenomenon to be reversed could sometimes offer a lot of complications, and irreversibility can be classified basing on policies: The first policy that is directed to lowering environmental degradation often imposes additional cost on the society, for example the coal mining industries would be expected to install scrubbers. Such incurred cost would avoid the uncertainties, as it enables the usual cost-benefit analysis to remain favoured to policy adoption. The second policy states that the environmental policy could remain totally irreversible. This means that some emissions are long-lasting and are hard to completely be done away with, even though measures could be put in place to make reductions, the level of concentration could significantly remain high. Adopting a policy at the moment has a sunken benefit (Pindyck, 2006). The implication created has that the normal cost benefit analysis is biased against policy adoption. Time length: Most investments and public policies have shorter time durations. However, environmental policies could take a form of longer time horizons; whereas the normal firm investment could last for a few decades, environmental policy could have a period of a century. Once an ecosystem is interfered with, the effects are long term; some of the environmental species could even get permanent extinction. As noted earlier, the intention of environmental policy is to regulate the use of environmental assets closer to optimal levels and thus create social benefits. If for instance some tax is to be associated with carbon emission with an aim of regulating carbon emission to the environment, the uncertainty that arises is when to impose such a policy, aside the tax and costs, and the benefit factor comes in to question; both the cost and benefit policies would thus depend on the extent and time duration the uncertainties would impact on the cost and benefit (Biswas, 2007). Waste and Recycling There are a lot of wastes from people that are exposed to the environment. According to Anderson, “the average child in Australia receives almost $500 worth of toys and average Canadian buys $2,900 worth of clothing” (Anderson, 2013, p. 5). This analysis shows the amount of wastes that are disposed. The dumpsites get filled so easily and the end result is contamination of environment. Ground water also gets contaminated. The most important approach to wastes is reduction and recycling strategies. With waste management system, something can be generated out of the wastes for instance efforts can be applied to generate energy from the wastes. Internalization Internalization provides a platform to create a socially optimum distribution of resources; the allocation procedure solves the issue of market mechanism whereby quality levels are achieved. The Japanese ministry of environment has come up with a policy of internalizing the prices of tropical timber in an effort to increase its price, which would in turn reduce timber trade (Ministry of the Environment Government of Japan, n.d). Although the optimum level being targeted may not be achieved, there are several factors that would determine the level of emissions and these are the main factors determining optimum achievement. They include: The choice of affected emissions. The choice of goods by the consumer; the manufacturing process of such goods may contain environmental emissions. The current technology. The objective of optimization through internalization is to ensure that the costs of externalities are subjected to its source cause (Cambridge University Press, 2011). In the event that externalities are present when the market mechanisms are not corrected, then there would be misallocations. The source of externality would then lead to some level of emissions. The effect of the uncorrected imbalance would be that the profits are high, but the interest of the damages is not considered in any particular way. In such a case, it is left for the government to correct the emission by use of direct controls. Under the polluter rule, the ownership right of the limited resource has an effect on polluter’s ability to pay. The rule is also responsible for the emissions made by way of seeking permission. Adding more costs would reduce the emissions caused. The level at which the polluter is willing to encounter the cost of emission is referred to as the marginal abatement cost. In the event that the minimum compensation demand is below the marginal abatement cost, then the polluter may be allowed to increase the emission by a small amount. However, this could also lead to marginal damage. The two factors, that is the marginal abatement cost and the marginal damage can be balanced; at this point, there is no further reallocation. Through the rule of laisez faire, the optimum allocation is reached. This is the point whereby “the level at which marginal damage corresponds to the marginal abatement cost” (Cambridge University Press, 2011, p. 36). Green Economy The current world demands appreciation of an economist urge for quality, where both the human and environmental needs are met. Sensible economies are not created through state money and regulations, green economy is achieved through sustainable agriculture, manufacturing processes and clean energies. From an economic point of view, there is no need and it is not justifiable to produce vast quantities of toxic products or production of unskilled labour instead of skilled. It is argued by Biswas that, “these are economic inefficiencies; economic irrationalities that can only be righted by starting from scratch-to look at the most elegant and efficient ways of doing everything” (2007, p. 6). Green economy has some critical principles; one of them is quality and intrinsic value. Quality and intrinsic value is the core principle in the green economy industry. It focuses on both the human and the environmental needs. It states that through the environment, matter can be retrieved and serves a very special role in human life, as it provides satisfaction and at the same time, it can be conserved. Finances also need to be returned to a level where regenerative exchanges can be achieved. The main issue related to economic growth is the ever increasing throughput; it has a common cycle of mining, manufacturing, usage and disposal. As the world moves further towards the green and sustainable economy, there is a high need for a recycling industry. In order for a human being to make a living, he has to extract various substances that are useful to him from the environment, for example timber, ores and many other minerals. In return, humans put several wastes back into the environment, such as sulphur dioxide. The Laws of Thermodynamics The laws of thermodynamics come in two folds. There is the first and the second law. Under the environmental economy, the second law of thermodynamics is very crucial. It states that the conversion of matter and energy by nature is unlimited, thus during such a process, some energy may exist that may not be able to be used; this point is important in the consideration of environmental economics. The first law of thermodynamics also states that matter and energy cannot be destroyed; they can only be converted (Callan & Thomas, 2012). These laws have great significance to the society. The second law highlights that any resource that ends up as a residual has the potential of causing harm to the environment. Different types of pollution have diverse effects on the environment and therefore the extent of the damage caused can also vary considerably. Local pollution is only limited within a small region; nevertheless, its effects could be difficult to control. It is down to the management, since poor pollution control could be more risky to the society. Global pollution may be difficult to control because of its wider range. It is the pollution related to international cooperation such as the global warming. Several factors have proved to be detrimental in achieving sustainable environment. Because environmental costs involve resource used, investment on environmental quality and environmental loss (Youli & Xiongyi, n.d.), application of these concepts of thermodynamics would help reduce the costs incurred. Conclusion In the past few decades, issues related to the environment have found their way to the business field, having a chance to play a vital role in economic decisions and corporate planning. There is a growing awareness across the world concerning the natural environment; everyone is becoming more sensitive to the repercussion of ecological damage. The world is changing its consumption method to include environmental responsibility. Such corporate action is very crucial not only because it complies with the regulations on production, but also for relevance in the marketplace whereby consumers have opted for producers who comply with environmental conservations. Environmental issues are wide and so costly. They call for collective responsibility in order to save for the future and reduce the current overspending on pollution. The steps thus adopted by international bodies have stepped to salvage the decaying environment. No matter the cost, prevention is better than cure. Reference List Adjaye, J. A. (2005). Environmental Economics for Non-economists: Techniques and Policies for Sustainable Development. Toh Tuck Link: World Scientific Publishing Company, Inc. Anderson, D. A. (2013). Environmental Economics & Natural Resource Management 4th Edition. London: Routledge. Biswas, M. (2007). Environmental Economics. New Delhi: Mittal Publications. Callan, S. & Thomas, J. (2012). Environmental Economics and Management: Theory, Policy, and Applications. Hampshire: Cengage Learning. Cambridge University Press. (2011). Environmental Economics: Theory and Policy. New York: Cambridge University Press. European Commission. (2014). Sustainable Development. Retrieved from http://ec.europa.eu/environment/eussd/ Koomey, J. & Krause, F. (1997). Introduction to Environmental Externality Costs. Retrieved from www.researchgate.net. Ministry of the Environment Government of Japan. (n.d.). Harmonizing Environment and Trade Policies. Retrieved from http://www.env.go.jp/en/earth/iec/hetp/ch2.html. Pindyck, R. S. (2006). Uncertainty in Environmental Economics. Retrieved from http://www.nber.org/papers/w12752. Sankar, U. (n.d.). Environmental Externalities. Retrieved from http://coe.mse.ac.in/dp/envt-ext- sankar.pdf. Youli, W. & Xiongyi, L. (n.d.). The Models for Internalization of Environmental Costs in Tech-Eco Assessment. Retrieved from http://www.pucsp.br/icim/ingles/downloads/papers_2010/part_3/The%20Models%20for%20Internalization%20of%20Environmental%20Costs.pdf. Read More