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Introduction of Environmental Economics

Why People Pollute?有關期中考：

文中加底線部份為考填充題之重點文中加“ Q&A” 部份為考簡答題之重點

張保興 副教授淡江大學水資源暨環境工程學系http://mail.tku.edu.tw/086138/

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What is Economy?

• The economy is a collection of technological, legal, and social arrangements through which a group of people seek to augment their material and spiritual standards of life.

» See the next two pages for further discussions on “their” and “material and spiritual”.

more

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Moral discussion on“their”

• 現在人類 ( 或某些人種 ) 之福祉 (welfare) ，還是 生態、後代子孫或萬物之福祉？

• 歐美等國目前消耗地球的資源極大，用完了則後代子孫怎麼辦？對落後國家應敬盡什麼樣的責任？ . . .

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Moral discussion on “material and spiritual”

• 有開發多半就有污染與生態上之破壞，則 material 與 spiritual 何者重要？

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The fundamental circular flow model of economic activity, “Q&A”•

Output market

Households Firms

Factormarket

Demand for goods and services expenditures

Supply for goods and services

revenues

costs

Demand for resources

income

Supply of resources

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The materials balance model: the interdependence of economic activity and nature, “Q&A”

•

Output market

Households Firms

Factormarket

Demand for goods and services

Supply for goods and services

Residuals from production

Reduce Reuse Recycling

Demand for resourcesSupply of

resources

Nature

Reduce 減量Reuse 再利用Recycling 再循環

Residuals from consumption

Natural resources drawn from nature

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Produce Less Waste by Practicing the 3 Rs:

Reduce, Reuse, Recycle, “Q&A”

http://www.epa.gov/epaoswer/non-hw/muncpl/reduce.htm#reduce

• ReduceSource reduction, often called waste prevention, means consuming and throwing away less.

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• ReuseReusing items by repairing them, donating them to charity and community groups, or selling them also reduces waste. (A shower curtain story, 暖手包 )

• RecycleRecycling turns materials that would otherwise become waste into valuable resources and generates a host of environmental, financial, and social benefits.

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再加一個 R , 3+1,一共 4R “Q&A”

• Refuse ：拒用（無環保觀念產品）• http://recycle.epa.gov.tw/main.asp

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Definition of economics

• Economics is the study of how people choose to use their limited resources (land, labor, and capital ( 資本的 ) goods like trucks and machinery and buildings) to produce, exchange, and consume goods and services.

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• Natural resource economics:

• A field of study concerned with the flow of resources from nature to economic activity.

• Environmental economics:• A field of study concerned with the flow of

residuals from economic activity back to nature.– residual: The amount of a pollutant remaining in the

environment after a natural or technological process has occurred.

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Scope of environmental damage

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Local pollution examples

• Urban smog (=smoke + fog)

• Solid waste pollution– Leaching contaminants such as lead and

mercury may flow into soil or groundwater.

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Regional pollution examples

• Acid rain damages: 中央氣象局– human respiratory system– ecosystems: soil, lake, forest– Building

• http://www.guardians.net/egypt/sphinx/

• http://mail.tku.edu.tw/086138/EnvFutures/TajMahal.doc

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Global pollution examples

• Ozone depletion --- ultraviolet radiation– Caused by CFCs (ChloFluoroCarbons)– Damages:

• weakens human immune system

• cause skin cancer

• affect ecosystems

• Global warming --- 水世界 , …

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An Abrupt Climate Change Scenario and Its Implications

for United States National Security

http://www.ems.org/climate/pentagon_climate_change.html#report

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Scene 1

• “Recent research, however, suggests that there is a possibility that this gradual global warming could lead to a relatively abrupt slowing of the ocean's thermohaline conveyor （熱鹽環流傳輸帶） , which could lead to harsher winter weather conditions, sharply reduced soil moisture, and more intense winds in certain regions that currently provide a significant fraction of the world's food production.” See home page

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Scene 2

• “The research suggests that once temperature rises above some threshold (門檻值，起點 ), adverse weather conditions could develop relatively abruptly, with persistent changes in the atmospheric circulation causing drops in some regions of 5-10 degrees Fahrenheit in a single decade. ”

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Scene 3

• “The report explores how such an abrupt climate change scenario could potentially de-stabilize the geo-political environment, leading to skirmishes, battles, and even war due to resource constraints such as: ”

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Scene 4

• “1) Food shortages due to decreases in net global agricultural production 2) Decreased availability and quality of fresh water in key regions due to shifted precipitation patterns, causing more frequent floods and droughts3) Disrupted access to energy supplies due to extensive sea ice and storminess ”

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Scene 5• “As global and local carrying capacities are reduced,

tensions could mount around the world, leading to two fundamental strategies: defensive and offensive.  Nations with the resources to do so may build virtual fortresses around their countries, preserving resources for themselves.  Less fortunate nations especially those with ancient enmities with their neighbors, may initiate in struggles for access to food, clean water, or energy.  Unlikely alliances could be formed as defense priorities shift and the goal is resources for survival rather than religion (Israel?), ideology (Taiwan?), or national honor (Nazi?). ” 電影 : 明天過後

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Environmental objectives, “Q&A”

1. Environmental quality (present oriented)

2. Sustainable development (future oriented)

3. Biodiversity (future oriented)

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Environmental quality

• Demand for zero pollution is impractical. • What pollution level is acceptable to society?

– It is a difficult decision, and it depends on the following factors.

• human health

• pollution reduction expenditures

• availability of pollution abatement technology

• the risk of a given environmental hazard

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Sustainable development

• Definition: The management of earth’s resources such that their long-term quality and abundance are ensured.

• But, a nation’s primal objective is speeding its economic growth that is usually measured by GDP.

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Definition of GDP國內生產毛額

• Gross domestic product (GDP) is the total value in money terms of all the production in a country in one year.

• GDP calculation: adding the price of goods and services produced.

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The objective: GDP growth

• Economists and many government officials often use GDP as a measure of economic welfare.

• The desire to achieve the targeted GDP growth may imply the growth of industrial productive activity.

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GDP is not a good indicator!

• The consequences of this expended productive activity are ecological damages and natural resource depletion.

• 矛盾的例子：當政府花錢清除有毒性廢棄物掩埋場址，或因環境惡化而造成民間及政府的醫療支出增加時，通常會造成 GDP也同時增加。

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Biodiversity

• Biodiversity, or biological diversity, refers to the variety of distinct species, their genetic variability, and the variety of ecosystems they inhabit.

• Biologists believe there may be as many as 100 million species on earth.

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Biodiversity

• The major threat to biological species is the destruction of natural habitat.– Reasons for the destruction:

• population growth

• poverty

• economic development (which includes)– harvesting for tropical forests (woods for example)

– conversion of natural land masses into alternative uses

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Biodiversity

• Other minor threats to biological species are,– pollutants– commercial activity– sport hunting

• In contrast, killing in animal world is not for pleasure. Example: Lion cub murder. Stronger or better gene are preserved through the killing process.

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Why people pollute?

Main Entry: 2goodFunction: noun 3 a : something that has economic utility or satisfies an economic want b plural : personal property having intrinsic value but usually excluding money, securities, and negotiable instruments

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Market

• The interaction between consumers (or buyers) and producers (or sellers) to execute the exchange of a well-defined commodity.

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Private goods

• A commodity that has two characteristics, rivalry in consumption and excludability.

• Examples: ice cream, tissue paper, ….

• rivalry in consumption: The consumption of the goods by one person precludes that of another.

• excludability:The benefits of consumption are exclusive to that single consumer.

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What is market failure?

• 當 market 在 classical microeconomic theory之下運作時，產生出正面或負面之結果(outcome) 。此現象稱為 market failure 。– Inefficient market conditions （見下頁）常會使市場無法在預期的最佳效率狀態下運作（ i.e., the equilibrium point under the allocative efficiency criterion ），故將此市場之結果稱為 market failure 。

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Market failure

• Market failure (e. g., the problem of environmental pollution) is the result of an inefficient market condition such as,

• imperfect information: 如 consumer 不知道污染、或某中藥對健康之影響

• imperfect competition: 如某行業有 entry barrier 。 請扶持老二 。

• public goods: (see next slide)

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Public good• A commodity that is non-rival and non-excludable.

– Examples: light house, national defense, environmental quality.

– non-rivalry in consumption: The characteristic that makes it impossible (or prohibitively costly in a less strict sense) to prevent others from sharing in the benefits of a good’s consumption.

– non-excludability: The characteristic of individual benefits of consumption such that one person’s consumption of a good does not preclude that of another.

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Free-ridership behavior

• This behavior occurs when a rational consumer recognizes that the benefits of a public good are accessible by allowing someone else to purchase it.

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Why people pollute?

• Environmental quality is a public good.• Free-ridership is an attitude toward a public

good.– This attitude implies everyone expects others to

pay the abatement cost for the degraded environmental quality. As a result, pollution problems persist and no further improvements due to polluters’ free-ridership attitude.

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Comment

• The desire of profit motivated self-interest, or greed, is the cause of degraded environmental quality and ecological catastrophe.

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Common property resources （ Common ：共有的，公共

的）• Those resources for which property rights are shared by some, not all, group of individuals.– Common property resources fall somewhere on a

continuum between the extremes of pure public goods and private goods.

– Examples: fisheries, animal populations, road network common, and grass land for pasture （牧草地 , 放牧場） .

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A famous paper by a biologist, Hardin

• Hardin, G., “The tragedy of the commons”, Science, 168:1246-1248, 1968.– The system containing resources, e. g., food, air,

energy, to which most people have ready access are called commons. 此 common 泛指 public good 及common property resources 。

• He presents a cold logic that indicates the ruin of a common is resulting from the self-interest motive of those resource exploiters.

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A grass land for pasture example [2], p17

• Four farmer families live on a grass land, farmer Jones is one of them, and each farmer has 10 cows.

• The carrying capacity （涵容能力） of this grass land is 40 cattle.

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Payoff matrix

•

1000*10=10,000

1000*10=10,000

880*11=9,680

880*10=8,800

970*10=9,700

970*11=10,670

820*11=9,020

820*11=9,020

The other farmers’ action

Farm

er Jones’ action

Does not add additional cows

Does not add additional cows

Add one more cow

Each add one additional cow

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Farmer Jones’ rational decision

• No matter what the other farmers do, Jones’ rational choice is to add one cow.

• The other three farmers make the same rational choice independently.

• The result: 44 cows on this grass land.» Note that the carrying capacity allows 40 cows only.

• The tragedy begins from these self-interest rational choices.

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We can act luxuriously, as long as we take within the limit of

nature’s carrying capacity.

An example of non-tragedy :

American bison, 150 years ago …

http://news.nationalgeographic.com/news/2006/02/0223_060223_bison_video.html

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The solutions to avoid the tragedy , “Q&A”

• Direct provision of public goods• Examples: roadways, parks, and fire protection,…

• Education and public information• Many people do not know the implications or the

consequences of pollution or resources depletion problems.

• Legislation• No laws, no enforcement.

---More---

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The solutions to avoid the tragedy , “Q&A”

• Assignment of property right• Property (e. g., park, lake, forest) owners will

protect their property from damages.

• Establish policies that raise the price of a product to reflect the social cost of environmental damages

• Establish a market and a price for pollution

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Bibliography

• [1] Callan, Scott J., Thomas, Janet M., Environmental Economics and Management: Theory, Policy, and Applications, Dryden Press, 2000.

• [2] Chechile, Richard and Carlisle Susan, “Environmental Decision Making: a multidisciplinary perspective”, Van Nostrand Reinhold, 1991.