ENS 107 Activity #1 PDF

**ENS 107\_ Activity \#1** 1. Read the article a. Dasgupta, P. 1996. The economics of the environment. Environment and Development Economics 1, 387-428 2. Guide Questions a. Article i. **What is the difference between Environmental Economics and Resource Economi...

**ENS 107\_ Activity \#1** 1. Read the article a. Dasgupta, P. 1996. The economics of the environment. Environment and Development Economics 1, 387-428 2. Guide Questions a. Article i. **What is the difference between Environmental Economics and Resource Economics?** - Resource Economics: - Focuses on the natural environment as a resource base for economic activities. - Examine the management and allocation of renewable and exhaustible resources, like fisheries, forests, and mineral deposits. - Tends to use tools from population ecology to study the dynamics of interacting species or resource stocks, and the rates of harvesting under different institutional settings. - Environmental Economics: - Concerned with the biotic and abiotic processes underlying ecosystem services, such as nutrient recycling, pollution control, and maintaining biodiversity. - Explores the value of ecological services and their sustainability under various policies and institutional frameworks. - Draws on systems ecology to understand the interactions between ecological systems and the economy, focusing on pollution, ecosystem degradation, and their implications. ii. **What is natural capital?** \- refers to the stock of natural resources and ecosystems that provide valuable goods and services essential for human survival and economic activity \- It includes forests, soil, air, water, and biodiversity, as well as the services they provide, such as nutrient cycling, waste assimilation, and climate regulation​ iii. **What is Ecological Economics?** \- an interdisciplinary field that integrates ecological and economic perspectives to study the relationship between the environment and human economies \- It emphasizes the sustainable management of natural capital and addresses environmental degradation, resource depletion, and ecosystem services​ iv. **Give examples of the neglect of ecological economics.** \- **Textbook Economics:** Environmental resources are often ignored in economics textbooks, treating natural capital as infinite. \- **National Policies:** Macroeconomic models frequently disregard the role of natural resources. -**Development Models in Poor Countries:** Environmental resources are seen as inexhaustible, leading to their depletion​ v. **What are the implications of the neglect of ecological economics?** \- **Unsustainable Growth:** Resource depletion may underlie economic growth, masking long-term harm. -**Environmental Degradation:** Lack of focus on sustainable practices exacerbates ecological harm. -**Misguided Policies:** Policies might favor short-term economic gains over long-term environmental sustainability vi. **What is Net National Product?** \- NNP is an aggregate measure of social well-being that considers the depreciation of natural capital alongside traditional economic metrics. -It reflects changes in a country's ability to maintain future standards of living, including adjustments for environmental degradation vii. **What is Market Failure?** \- Market failure occurs when market prices fail to reflect the true social costs or benefits of goods and services, leading to inefficient resource allocation -Examples include unregulated pollution or the overexploitation of common-property resources​ viii. **What are externalities?** \- Externalities are unintended side effects of economic activities that affect third parties without compensation. **Negative Externalities**: Pollution from factories impacting public health. **Positive Externalities**: Research findings benefiting others without payment ix. **What are the two main causes of environmental degradation?** \- Market Failure: Lack of proper pricing for environmental resources leads to overuse or misuse. -Institutional Failures and Poverty: Inequities, poor governance, and poverty can prevent effective resource management​ x. **What are the implications if the resource-based goods are underpriced in the market?** -Excessive Resource Exploitation: Overharvesting or depletion of resources. -Implicit Subsidies: Hidden costs borne by society, often impacting marginalized groups. -Environmental Harm: Long-term degradation of the natural resource base​ xi. **Give examples of the overuse of common-property resources** \- Overfishing in oceans and lakes. -Deforestation of communal forests. -Overgrazing on shared pasturelands. -Water overuse from shared aquifers and rivers xii. **How can we manage efficiently the local commons?** \- Community-Based Management: Engage local users to regulate access and usage. -Property Rights: Define and enforce clear user rights. -Collective Action: Establish cooperative agreements to sustain the resource. -Government Support: Provide resources and policies to support sustainable practices​ xiii. **Why do we need to account for the option value aside from the use value if we account for the price of a resource?** \- Option value represents the value of preserving the potential for future use of a resource, even if it is not currently used. -Accounting for it ensures that the benefits of retaining a resource for uncertain future needs are included in its price. This prevents irreversible decisions that could limit future opportunities​ xiv. **Why does GNP include the country's environmental resource base?** \- Traditional Gross National Product (GNP) does not adequately include the depletion or degradation of environmental resources. Incorporating the environmental resource base reflects the sustainability of economic activities and the true costs of resource use, which affect long-term social well-being​ xv. **What is the equation of green NNP?** -Green NNP= GNP **−** Depreciation of Man-made Capital **−** Depreciation of Natural Capital xvi. **Why are current estimates of NNP biased? What is the implication of this to social well-being?** \- Current NNP estimates are biased because they exclude the depreciation of natural capital and the degradation of the environment. This leads to overestimating economic well-being and underestimating the long-term sustainability of growth. Such bias can result in policies that prioritize short-term gains over long-term ecological and economic stability​ xvii. **Why is protecting the capacity of ecosystems to sustain human well-being is of as much importance to poor countries as to those that are rich?** \- Ecosystems provide essential services---such as clean water, food, and air---that are critical for survival, particularly in poor countries where people rely directly on natural resources for their livelihoods. In both poor and rich countries, ecosystem degradation undermines long-term human well-being, economic stability, and resilience to environmental challenge xviii. **Why are international negotiations over the protection of ozone layer have been more successful than the stabilization of CO2 emissions?** \- **Clear Scientific Consensus:** Ozone depletion had clear, immediate health impacts (e.g., increased cancer risks) that were universally understood. -**Tangible Substitutes:** Industries could transition to alternatives for ozone-depleting substances like CFCs with relative ease. -**Global Agreement:** The effects of ozone depletion were non-differentiated geographically, making collective action more achievable.\ In contrast, stabilizing CO2 emissions involves complex economic impacts, long-term effects, and unequal contributions and benefits among countries​ xix. **What is the importance of central authority in making international agreements successful?** \- central authority ensures: 1\. **Coordination:** Provides a unified framework for negotiations and enforcement. 2\. **Accountability:** Monitors compliance and penalizes violations. 3\. **Trust:** Acts as a neutral mediator to build trust among participating nations. Without a central authority, agreements may lack enforcement and coherence​ xx. **What are the three mechanisms by which an agreement can be implemented?** -**Incentives:** Use economic rewards, such as subsidies or financial assistance, to encourage participation. -**Sanctions:** Impose penalties on nations or entities that fail to comply with the agreement. -**Capacity Building:** Provide technical and financial resources to support countries in meeting their obligations under the agreement 3. Additional Questions b. Explain the concepts: xxi. Resource Basis of human activity xxii. System Ecology and Population Ecology -**System Ecology:** Focuses on energy flows, biochemical cycles, and interactions within ecosystems. It studies the processes that support ecosystem services like nutrient cycling and waste assimilation. -**Population Ecology:** Examines the dynamics of species populations, such as their growth, interaction, and harvesting, within ecosystems. xxiii. Markets and Shadow Price -**Markets:** Institutions where goods and services are exchanged, ideally reflecting their value through prices. -**Shadow Price:** The true economic value of a good or resource, accounting for social and environmental costs or benefits not captured in market prices. For example, the shadow price of clean air includes the costs of pollution and its health impacts xxiv. Poverty and environmental degradation \- Poverty often forces individuals to overexploit natural resources (e.g., deforestation for firewood) due to lack of alternatives, leading to degradation. Conversely, environmental degradation exacerbates poverty by reducing access to essential resources like water and fertile land xxv. Unidirectional interactions and market failure \- Unidirectional interactions occur when one activity (e.g., deforestation upstream) harms another (e.g., flooding downstream). Without proper pricing mechanisms, these externalities lead to market failure as the costs of such interactions are not accounted for​ xxvi. Reciprocal interactions and market failure -Reciprocal interactions involve shared resources (e.g., fisheries) where actions by multiple users affect each other. Overexploitation occurs when individual users disregard the collective impact, leading to market failure​ xxvii. Local commons and social capital \- Local commons are shared resources like forests, water bodies, or grazing lands. Social capital, in the form of trust, norms, and networks within communities, enables collective management and sustainable use of these resources​ xxviii. Property rights and environmental degradation \- Clearly defined and enforced property rights reduce overuse of resources by holding users accountable. In contrast, unclear or absent property rights lead to overexploitation, as seen in the tragedy of the commons​ c. What is Economics? \- Economics is the study of how individuals, businesses, and societies allocate scarce resources to satisfy unlimited wants and needs. It encompasses microeconomics (individual and firm-level decisions) and macroeconomics (national and global economic systems) d. Give examples of Microeconomics and Macroeconomics studies -**Microeconomics:** Pricing strategies of a company Consumer behavior regarding sustainable products. -**Macroeconomics:** National unemployment trends Effects of monetary policy on inflation e. What are the major economic problems? -Scarcity of resources. -Inefficient allocation and distribution of wealth. -Inflation and unemployment. -Environmental degradation and sustainability. f. Give examples of Normative and Positive Economics \- **Normative Economics:** \"Governments should impose higher taxes on polluting industries.\" -**Positive Economics:** \"Higher taxes on industries reduce pollution levels.\" g. Why Study Environmental Economics? \- Studying environmental economics helps to understand the value of natural resources, assess the costs of environmental degradation, and design policies that balance economic growth with ecological sustainability h. Discuss Economy and the Environment \- The economy depends on the environment for resources and waste assimilation. However, overuse and degradation can undermine economic stability, making sustainable management crucial for long-term prosperity. i. Do economic growth and sound environmental policy necessarily conflict? Identify some areas where a choice must be made between economic growth and environmental preservation and others where the two are compatible. \- Not always. - **Conflicting Areas:** - Deforestation for urban expansion. - Mining activities affecting biodiversity. - **Compatible Areas:** - Renewable energy projects. - Energy-efficient technologies that reduce costs and emissions. j. Can we put a money price on environmental resources? How? Is this impossible in any cases? Identify specific situations of valuing the environment with which you are familiar or have read about \- Yes, through valuation methods like: - **Contingent Valuation:** Willingness to pay for clean water. - **Hedonic Pricing:** Property values reflecting air quality.\ However, certain resources (e.g., biodiversity or cultural heritage) are harder to quantify due to intrinsic or non-market values. k. In what ways do the principles of ecological circular flow resemble those of the economic circular flow? How do they differ? Consider specific examples in the areas of agriculture, water, and energy systems -**Similarities:** Both emphasize the flow of resources, energy, and goods between systems. -**Differences:** Ecological flow focuses on natural cycles (e.g., water or carbon cycles) Economic flow focuses on production and consumption (e.g., labor, goods, and capital). **Example:** Agriculture relies on ecological water cycles but operates within an economic framework of market demand. SIMPLIFIED EXPLANATION **2. Guide Questions** **i. What is the difference between Environmental Economics and Resource Economics?** - **Resource Economics**: Focuses on managing and using natural resources (like fish, forests, and minerals) for human benefit. Studies how to use these resources wisely and avoid running out. - **Environmental Economics**: Focuses on protecting the environment, studying pollution, biodiversity, and services like clean air and water. It looks at how human activities affect ecosystems. **ii. What is natural capital?** - Natural capital means all the natural resources (like water, air, and forests) and ecosystems that provide important benefits for humans, like clean water, food, and climate regulation. **iii. What is Ecological Economics?** - It's a study combining economics and ecology to understand the link between the environment and human economies. It focuses on managing nature sustainably to avoid environmental harm. **iv. Give examples of the neglect of ecological economics.** 1. **Textbooks**: Ignoring environmental resources as if they're unlimited. 2. **Policies**: Governments often ignore nature's role in the economy. 3. **Poor Countries**: Thinking resources like forests or water will last forever, leading to their overuse. **v. What are the implications of the neglect of ecological economics?** 1. **Unsustainable Growth**: Economic growth might use up resources without thinking of the future. 2. **Environmental Damage**: Ignoring the environment leads to pollution and loss of resources. 3. **Bad Policies**: Governments may focus on short-term profits over long-term sustainability. - Net National Product (NNP) measures a country's well-being by accounting for the wear and tear (gradual damages) of resources (like forests or water) alongside regular economic output. **vii. What is Market Failure?** - Market failure happens when market prices don't reflect the true costs or benefits of goods: gas pollution emitted from industrial processes **viii. What are externalities?** - Externalities are side effects (outcomes) of activities that affect others without being included in the price. - **Negative example**: Factory pollution harms public health. - **Positive example**: Research benefits everyone, even those who didn't pay for it. **ix. What are the two main causes of environmental degradation?** 1. **Market Failure**: Resources are too cheap, so people overuse them. 2. **Institutional Failures and Poverty**: Poor management or poverty leads to resource overuse. **x. What are the implications if the resource-based goods are underpriced in the market?** 1. **Overuse**: People overexploit resources like forests and water. 2. **Hidden Costs**: Society pays for environmental damage, often hurting the poor. 3. **Environmental Harm**: Long-term destruction of resources. **xi. Give examples of the overuse of common-property resources.** - Overfishing in oceans. - Cutting too many trees in shared forests. - Overgrazing in shared pastures. - Taking too much water from shared rivers or underground reserves. **xii. How can we manage efficiently the local commons?** 1. **Community-Based Management**: Local groups decide on fair use. 2. **Property Rights**: Make clear rules about who can use the resource. 3. **Collective Action**: Work together to protect resources. 4. **Government Help**: Support communities with policies and funding. **xiii. Why do we need to account for the option value aside from the use value if we account for the price of a resource?** - **Option value**: The worth of saving a resource for the future, even if it's not used now. Accounting it prevents destroying resources that could be important later. **xiv. Why does GNP include the country's environmental resource base?** - Traditional GNP ignores the loss of natural resources. Including them shows the real cost of growth and helps plan for long-term well-being. **xv. What is the equation of green NNP?** - **Green NNP = GNP -- Depreciation of Man-made Capital -- Depreciation of Natural Capital** **xvi. Why are current estimates of NNP biased? What is the implication of this to social well-being?** - Current NNP misses the cost of environmental damage and resource loss. This makes economies look healthier than they are, risking poor decisions for the future. **xvii. Why is protecting the capacity of ecosystems to sustain human well-being of as much importance to poor countries as to those that are rich?** - Poor countries depend directly on nature for survival (like farming or fishing). Damaged ecosystems hurt everyone, but they harm poor nations the most. **xviii. Why are international negotiations over the protection of the ozone layer more successful than the stabilization of CO2 emissions?** - **Ozone Success**: 1. Health risks (like cancer) were clear and urgent. 2. Industries had alternatives to harmful chemicals. 3. Everyone agreed on the problem. - **CO2 Challenges**: 4. Effects are long-term and harder to see. 5. Countries contribute to and are affected differently. **xix. What is the importance of central authority in making international agreements successful?** 1. **Coordination**: Keeps everyone on the same page. 2. **Accountability**: Checks if countries follow the rules. 3. **Trust**: Acts as a neutral party to resolve disputes. **xx. What are the three mechanisms by which an agreement can be implemented?** 1. **Incentives**: Rewards like subsidies for following the agreement. 2. **Sanctions**: Penalties for breaking the rules. 3. **Capacity Building**: Help (like training or funds) for countries to meet their goals. **a. Explain the concepts:** **i. Resource Basis of Human Activity** - Human activities (like farming, manufacturing, and trade) depend on natural resources such as minerals, forests, and water. Sustainable use of these resources ensures economic growth and human survival over time. **ii. System Ecology and Population Ecology** - **System Ecology**: Studies how energy and materials flow through ecosystems, such as nutrient recycling and waste absorption. - **Population Ecology**: Examines how populations of species grow, interact, and respond to factors like harvesting and competition. **iii. Markets and Shadow Price** - **Markets**: Places where goods and services are traded, with prices that represent their economic value. - **Shadow Price**: The \"true\" value of a good, including hidden social or environmental costs (e.g., the health impacts of air pollution). **iv. Poverty and Environmental Degradation** - Poverty can lead to overuse of natural resources (e.g., cutting trees for firewood). This degrades the environment, which in turn worsens poverty by reducing essential resources like water and fertile land. **v. Unidirectional Interactions and Market Failure** - When one activity harms another (e.g., deforestation upstream causing flooding downstream), and the market doesn't account for these costs, it leads to inefficiencies or market failure. **vi. Reciprocal Interactions and Market Failure** - Shared resource use (like fishing) where users affect one another often leads to overexploitation if individual actions ignore the collective impact, causing market failure. **vii. Local Commons and Social Capital** - **Local Commons**: Shared resources like forests or rivers. - **Social Capital**: Community trust and cooperation that enable sustainable management of these resources. **viii. Property Rights and Environmental Degradation** - When property rights are clear, people are more likely to manage resources responsibly. If unclear, resources may be overused (e.g., overfishing in open waters) **b. What is Economics?** - Economics studies how people and societies use limited resources to meet their needs and wants. It includes: - **Microeconomics**: Individual or business-level decisions. - **Macroeconomics**: National or global economies. **c. Examples of Microeconomics and Macroeconomics Studies** - **Microeconomics**: - Pricing strategies of companies. - Consumer preferences for eco-friendly products. - **Macroeconomics**: - National employment rates. - Inflation trends **d. Major Economic Problems** - Resource scarcity. - Wealth inequality. - Inflation and unemployment. - Environmental damage and sustainability challenges **e. Examples of Normative and Positive Economics** - **Normative Economics**: Suggests how things *should* be (e.g., "Governments should tax polluters more heavily"). - **Positive Economics**: Describes what *is* (e.g., "Taxing polluters reduces emissions"). **f. Why Study Environmental Economics?** - To understand the value of natural resources, measure the cost of environmental damage, and design policies for sustainable development. **g. Discuss Economy and the Environment** - The economy depends on the environment for resources (e.g., wood, minerals) and waste processing. Overusing or degrading these resources threatens long-term economic stability **h. Do Economic Growth and Environmental Policy Conflict?** - **Not always**. - **Conflicts**: Cutting forests for development, mining that destroys ecosystems. - **Compatibility**: Renewable energy projects, energy-saving technologies. **i. Can We Put a Money Price on Environmental Resources?** - **Yes**, using valuation methods like: - **Contingent Valuation**: Surveying people's willingness to pay for clean air or water. - **Hedonic Pricing**: Linking property values to environmental quality (e.g., homes near clean rivers are worth more). - **Difficult Cases**: Priceless resources like biodiversity or cultural heritage may not have a clear monetary value. **j. Ecological Circular Flow vs. Economic Circular Flow** - **Similarities**: Both show resource and energy flows. - **Differences**: - Ecological flow emphasizes natural cycles (e.g., water and carbon cycles). - Economic flow focuses on human production and consumption (e.g., goods and services). **Example**: - **Agriculture** relies on water cycles (ecological) but operates in markets with supply and demand (economic)