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Lecture 5

ENV310H5 Lecture Notes - Lecture 5: Natural Resource Economics, Natural Capital, Natural Capitalism

Course Code
Barbara Murck

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ENV310 LEC 5
- Principles of economic sustainability
o The discount rate
o Distributional equity and discounting
o Free riders and externalities
o Managing common property resources
o Types of capital
Natural apitalis, sustitutailit, ad true ioe
o Externalities
Cost to society that is not captured by market prices, ie a cost associated with
production that is not internalized by the company
Some env and social eg:
Company pollutes stream. Govt pays for cleanup. Fish die, fishers lose
income. Child downstream suffers ill health bc of pollution
Car emissions cause air pollution. Extra deaths each year from
respiratory problems cost to ind and to soc for health care
Not always bc companies are bad, but bc its hard to put a price on some
commodities eg: emissions
Walmart changed their fleet of trucks to be electrical some companies think
+ve and -ve externalities
Usually talk about -ve
Benefit - +ve
Cost/harm - -ve
Ways of reducing -ve downstream externalities
o Taxes carbon tax
o Laws that limit the amount of pollution required tech to
reduce pollution, or caps on pollution
o Mutually agreed-upon guidelines production standards
o Property rights cap and trade
Types of capital:
o Natural capital: ecological g/s
o Human capital: health, knowledge, skills, motivations
o Social capital: institutions eg: families, communities,
businesses, tade, etc
o Manufactured capital: material goods or assets
o Financial capital: enables other types of capital to be owned
and traded, but has no inherent value
Value of a commodity eg stream or forest, in dollars
o Five capitals model
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All considered equal in this one
o Natural capitalism
Limiting factor for future economic development
Esp life-supporting g/s that have no possible substitutes and no current
market value
All forms of capital should be fully valued
Critical dependency of production on natural capital
Four interlinked principles:
Redesign industry on biological models with closed loops and zero
o Do it with the idea that we live in a closed system and should
consider closed loop production
o Circular economy taking a closed systems perspective
Radically increase resource productivity
o Get the max out of nat resources without degrading them
Shift from the sale of goods (e.g., light bulbs) to the provision of
services (e.g., illumination)
o Istead of I gotta sell lightuls, thik of I need to help
people light up spaes
o Focus on services
o How do we help people do what they need to do
Reinvest in the natural capital that is the basis of future prosperity
o Protecting the nat env and our nat habitat
o Sustainable income
Money that you make through work/investment income
Hicksia icoe: Ioe that doest deplete capital (i.e., the amount that
can be consumed while keeping capital intact)
amount you can consume while keeping your capital
Sustainable income: Maximum amount that can be consumed while ensuring
that future generations can have living standards at least as high as those of the
current generation
Using nat resources while making sure that future generations also get
to use it
o Environmental economics
Variant of mainstream economics
Allocation of scarce resources
Natural resource economics
Market failure: When the market fails to allocate resources appropriately or
Examples of market failure:
Common-property resource non-excludability
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o hard to keep people away from it (common property resource)
In either case, an individual (or company) makes a choice that affects
other people in a way that is not accounted for in the market price.
Originated thru a bunch of workshops at the WORLD BANK
Talked about the idea of market failure and externality
Major focus is how do we value env g/s? talk about putting a DOLLAR VALUE
Assign quantitative values to environmental goods and services, even if
arket pries aret aailale
There is debate about whether valuation is a good thing to do from an
environmental perspective
o 2 groups of people ones who believed that putting a dollar
value will generate profit and ones who said you cant put a
dollar value on natural stuff
Accounting for the asset value of environmental resources:
o Roots: Malthus, Mill, Jevons
o Modern: Boulding, Pearce, Repetto
Some approaches and tools of environmental economics:
Cost-benefit analysis of policies or project
Total Economic Value analysis
Contingent valuation:
o Willingness-to-pay and willingness-to-forego
Eg someone wants to buy my car, they ask me the
price at which im willing to forego my car
Eg: diff in price bw condo by the lake va by the highway
o Choice modelling
Look at the choices people make and see how they
make such choices
Helps put a value on the services
o Hedonic methods
Let the price that people pay, reflect the value of the
Concept that some aspects of nat capital can be valued
Multiple functions analysis
Social cost-benefit analysis
o How do we use env g/s
Variations on how to categorise rescources
2 values: use and non-use
o Direct
o Indirect
o Option
o Bequest the value to you, knowing your children will have that
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