GEOS2121 Lecture Notes - Lecture 8: Ecological Economics, Green Economy, United Nations Conference On Sustainable Development
23 May 2018
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Economic Tools for Managing the Environment
Introduction:
1. Environmental Economics: introduce economics more closely as a discipline and the way that
economists have developed their own tools to deal with various environmental problems.
They argue that understanding these tools is essential to environmental and resource
management.
2. Ecological Economics: ecological economics as a slight alternative
What is Economics?
• "The social science that describes the factors that determine the production, distribution and
consumption of goods and services", the broadest definition
• "A science which studies human behaviour as a relationship between ends and scarce means
which have alternative uses" an alternative definition
• Often however when we think of economics today it is a particular type of economics which is
referred to as Liberal (neo-classical) economics which hold the market as a central principle,
whereby prices and quantity of goods and services are determined by supply and demand.
Key features of this type of economic system is;
o Competition is essential for the functioning of markets
o Utility is reealed osuers’ illigess to pa differet aouts for different
goods. It reflects the satisfaction (well-being?) of a rational consumer. Basically a factor
of wellbeing measured through a perso’s illigess to pa for ertai thigs, akig a
choice goes along with this idea and satisfaction arising from making your own choice
o Efficiency (both allocative and productive) is a normative aim in economics. The end goal
of efficiency
Green Economics
Within this broader system of social science green Economics emerged. It was a term used in the
Rio+20 conference in 1992. within this branch of science terms such as sustainable growth will be
prevalent regardless of what it refers to whether it refers to the decoupling or as often used in
corporate discourse the ability to keep growing for a company or economy. Other terms include;
• Green growth
• Green economy
• Greenwashing
Blueprint for a Green Economy
The first work that tried to develop tools that could address environmental was the "Blueprint for a
Green economy" written by David Pearce, Anil Markandya and Edward Barbier.
Published in 1989 after Brutland report for Sustainable Development and in prep for the Rio +20 in
1992.
The 3 key claims in the book were:
1. Environmental Valuation (valuing ecosystem services and incorporating externalities) : the
major problem causing environmental decline was they weren't incorporated into the
economic system and therefore devalued and aspects of the environment were overused and
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exploited as a result. To address this and to ensure that our economy identifies scarcity of
environmental resources we need some form of environmental valuation.
2. Accounting for the environment (natural capital); aside form looking at GDP we should also be
accounting better for decline in soil quality, water availability and atmospheric cleanliness
overtime etc.
3. Creating incentives for environmental improvement (institutions): encouraging incentives for
practices that are more supportive of and conservative towards the environment
How do economists deal with environmental problems?
Environmental economics is generally known to be a subclass of neo-classic economics in the sense
that it retains the importance of the market as an essential feature, accepts utility as a de facto tool
for identifying human welfare, it doesn't explicitly address or accept that there are physical limits to
growth and prioritises efficiency over scale
The general approach with environmental economics is that the problem is there is a market failure
and so therefore we need to assign market values to the environment and then we can start
addressing environmental problems.
Addressing the market failure: market failure is a term that economists use when a market is not
operating as it ideally should, there are various forms of market behaviour that is unrelated to the
eiroet; iforatio asetries uer ad seller do’t alas hae perfet iforation and
therefore that creates a barrier), non-competitive markets (monopolies e.g. not enough
competition).
In terms of environment though there are three key market failures which environmental
economists want us to address:
• Externalities: if I want to go buy a product I do not pay the full price I am not paying for the
damage caused to the environment for the extraction processes, the logistics i.e.
environmental externalities are not incorporated within the costs of product. The price
mechanism does not capture the externalities.
• Public goods (non excludable, non-rivalrous): there are two forms non excludable, non-
rivalrous. The first means that no one owns them fully for example clean air solar energy and
this means that we cannot exclude others from using this product, the latter refers to if I can
use the product other can also use just as equally as me for example with fresh air an solar
energy everybody has equitable access. The economy has no way of maintaining clean air for
us to breathe it is a public good problem.
• Open Access Common Property: problems non excludable fish in the sea but are also rivalrous.
Markets fail when the price mechanism is unable to function or gives the wrong signal to users
Markets require excludability (property rights) and ecosystem services are not always excludable.
These are problems that require an intervention.
Market Failures and Institutions
➢ The general approach is once a market failure is identified an institution needs to be created
to address that failure.
➢ Market failures require institutional interventions (often by the state) and therefore
depends on political will.
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