Environmental and Natural Resources Economics

Theory, Policy, and the Sustainable Society

Steven Hackett, Sahan T. M. Dissanayake

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317471288
• Edition: 4
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Extensively revised and updated, this popular text presents an accessible yet rigorous treatment of environmental and natural resources economics, including climate change and the economics of sustainability. Completely revised and updated, the fourth edition now includes new figures and tables, definitions to assist the reader, and updated policy information. New advances in the science, economics and policy approaches to climate change have been integrated into essentially all-new chapters on incentive regulation and global climate change. This innovative textbook integrates economics with science and public policy in a balanced and accessible way that will be appreciated by students from disciplines ranging from economics and natural resources management to environmental studies and energy policy.

PART ONE

THEORY AND FUNDAMENTALS

CHAPTER 1

Introduction

INTRODUCTION

Traditionally, economists learned very little about the environment, and environmental scientists and resource managers learned very little about economics. Yet economic and environmental systems interact in many important ways, and an increasing number of economists, scientists, and resource managers are finding that they need to work in an interdisciplinary fashion in order to understand these interactions and develop effective public policy. This book provides a foundation for you to learn more about a wide variety of problems and policies at the interface of economic and environmental systems. Economic systems derive many valuable inputs (some commodified, some free) from the ecological, hydrological, geological, atmospheric, and other systems and processes of Earth. For example, essential ecosystem services such as nutrient cycling, sink functions of wetlands, and the hydrological cycle have economic value, and methods are being developed to measure these values.

Ecosystem Services

As Robert Costanza and his colleagues have observed, ecosystem services consist of flows of materials, energy, and information from natural capital stocks, which combine with manufactured and human capital services to produce human welfare.

Economic activity can have negative impacts on the functional integrity of these natural systems and processes, though in some cases such impacts can be substantially reduced or even eliminated through careful public policy. Environmentally harmful activity can be reduced (or environmentally benign activity can be increased) by changing the incentives of people and businesses through the use of taxes, subsidies, ecolabels, deposit/refund systems, and liability, or through the use of caps, bans, and technology standards. Markets for emission credits can be used in conjunction with emissions caps to reduce the cost of compliance with environmental regulation. while industry groups will oftentimes exert political influence to reduce or overturn costly environmental regulations, under some circumstances firms have an incentive to lobby to impose more stringent environmental regulation on their industry.

These are just a few of the topics addressed in this book. As Berry (1987) observes, “The thing that troubles us about the industrial economy is exactly that it is not comprehensive enough, that, moreover, it tends to destroy what it does not comprehend, and that it is dependent upon much that it does not comprehend” (pp. 54–55). It is hoped that this book will help introduce economists to relevant and important environmental issues, and help resource and environmental specialists develop a basic competency in economics.

There are many different perspectives on the environment. Dryzek (2005) provides a useful way of understanding these perspectives and the types of environmental discourses within them. Discourses are those shared, structured ways of speaking, thinking, interpreting, and representing things in the world. For example, within the conflict perspective on the environment is the discourse on survivalism, which focuses on physical limits to carrying capacity, and the potential for an overshooting of carrying capacity due to population growth and affluent consumption behavior. Another perspective—green radicalism—rejects the basic structure of industrial society and the way the environment is conceptualized, and promotes instead the transformation of the anthropocentric orientation of human motivations into an ecocentric orientation.

Much of the approach taken in the first eleven chapters of this book follows what Dryzek calls a “problem-solving perspective.” The problem-solving perspective addresses environmental problems as occurring within the existing structures and institutions of the industrial society. The discourses within the problem-solving perspective differ in their proposals on how best to organize efforts to resolve such problems. For instance, Dryzek (2005) describes administrative rationalism as a discourse that advocates resolving environmental problems through existing regulatory agencies leading and coordinating pollution control, implementing regulatory policies, and conducting environmental impact assessments. According to Dryzek, economic rationalism proposes to resolve environmental problems in the existing market context. This discourse addresses issues of property rights, externalities, and the incentives of individuals, firms, and policymakers. Problem-solving instruments include environmental taxes, subsidies, and tradable quotas.

Environmental Economics

A field of study that focuses on the economic effects of environmental policies, and on the consequences of economic systems and policies on the environment.

Natural Resources Economics

Field of study that focuses on the supply, demand, and allocation of Earth's natural resources. A primary objective is to better understand the role of natural resources in the economy in order to develop more sustainable methods of managing those resources over time.

The discourses of administrative and economic rationalism, which focus on methods for resolving environmental problems by reforming existing structures and institutions, are central to environmental and natural resource economics. There are a number of themes covered in this book that usually come together under the heading of environmental and natural resources economics. A primary focus of this book is on environmental economics, which analyzes the economic basis for pollution problems, as well as the policies designed to resolve pollution. Much of the work in environmental economics studies the application and performance of incentive regulatory practices, such as pollution taxes, liability, or cap-and-trade systems. Some environmental economists also develop or apply methods for estimating the benefits of environmental improvements or the costs of pollution externalities. Others study the political economy of environmental policy.

Ecological Economics

A transdisciplinary field focused on the interdependence of economies and natural ecosystems over time. Distinguished from environmental economics by its more science-centered treatment of the economy as a subsystem of the ecosystem, and by its emphasis on preserving natural capital.

Another important focus of this book is on natural resources economics, which has traditionally addressed problems of governing common-pool natural resources, of finding dynamically optimal rates of renewable or nonrenewable resource extraction, and of comprehending the workings of resource and energy markets. Fossil or renewable energy resources and policy are an important area of study in natural resources economics. More recently, ecological economics has emerged as an area of study focused on understanding the economics of natural capital and the ecosystem goods and services that flow from it.

Natural Capital

The stock of natural resources, together with the components and the structural relationships in Earth's ecosystems, which taken together serve as the foundation for life on Earth. From the stock of natural capital flows the annual harvest of natural resources, ecosystem services, sink functions, and other gifts of nature.

Dryzek argues that in the 1980s the discourse on survivalism (a radical discourse focused on limits) yielded to that of sustainable development, which seeks to reform, rather than radically remake, the dominant political and economic system. Sustainable development seeks to reconcile development and environmental concerns through policy that integrates environmental protection, poverty alleviation, social justice, and intergenerational equity into development efforts. The sustainability perspective promotes broader and more equitable participation in policy decisions, and repudiates unsustainable consumption and production. Reform must address the relationship between failures of economic and social justice on the one hand and environmental degradation on the other. The sustainable development discourse differs from the discourses on administrative and economic rationalism by being more open to imaginative solutions that do not take the existing political and economic order as being entirely fixed. The last five chapters of this textbook explore the reformist imaginative perspective of sustainab...