a young person's guide to environmental economics

Until quite recently, it was thought that developing countries could postpone environmental improvements while awaiting economic growth. But better understanding of the linkages between the environment and economic growth now stress the need to devise approaches for dealing with the former in order not to derail the latter. This need has been intensified by ever-greater environmental degradation in even the wealthiest of these countries and by the realization that the well being of developed countries can be drastically affected by activities in the developing world. The fear is that continued population expansion and economic growth, along with the energy- and materials-intensive consumption patterns that they bring, will aggravate environmental degradation in developing countries and hurt one and all. There is a basis for such fear, even if environmental problems should not be viewed solely through the lens of the affluent. The Asian and Pacific region, for example, contains the world’s fastest growing and most dynamic economies. Their unprecedented development is expected to carry on. However, growth rates—though high—are derived from low levels of per capita income, so that demand for goods and services will continue to swell. At the same time, continuing high population growth rates are exerting pressure and more than two thirds of the world’s 1.2 billion people living in poverty reside in that region (which now contains 12 of the world’s 21 megacities). Policy and market failures are many. Institutions are weak and their absorptive capacities are uncertain. Naturally, the relative importance that governments in that region assign to resource and environmental issues is changing. Although environmental problems were once considered to be limited to those resulting from urbanization and industrialization, they now include air and water pollution; land degradation; soil erosion; desertification; deforestation; loss of biological diversity; green house gas emissions; acid rain; urban pollution; and toxic and hazardous wastes. Interactions between the environment, population growth, and economies have continual, complex, and multiple feedback mechanisms that are difficult to understand. This has implications for the balance of actions to resolve problems. In brief, uncertainty centers on how physical processes will respond to human intervention, how people will react, and how institutions will echo policy initiatives. Because the environment can no longer be looked upon as an area of marginal concern that is best addressed by natural scientists, social scientists are more and more called upon to provide both an analysis and prescriptions for environmental problems. And economists, once again, make strong claims about their ability to contribute to the debate. From an economic perspective, nature performs three main functions. First, the environment is a resource base comprising renewable and non-renewable resources: it provides economies with both raw materials, which are transformed into consumer products by the production process, and energy, which fuels this transformation. Ultimately, all these raw materials and energy are discharged into the environment as waste products. From this, it follows that the environment also acts as a waste sink (which refers to its regulating or stabilizing function, including its capacity to process waste products). Last, the environment also serves as an amenity base whose services, e.g., recreational facilities, flow to individuals without the intermediation of productive activity. On the basis of this model, economics promises and often delivers predictions to policy-makers aimed at environmental management. However, it ignores the environment’s primary function as a life support system; ascribes little or no value to the three economic functions that it does recognize; allows substitution between natural and produced capital even though the former is multifunctional and sometimes irreplaceable; provides no guidelines for approaches to environmental uncertainty; and cannot answer questions regarding the equity of resource use across people and through time (intragenerational and intergenerational equity objectives). If, as generally agreed, sustainable development is economic development that endures over the long run, economics must resolve these issues before it can really help society to attain the goal of sustainability. Economic frameworks and methods, however, are founded upon an a priori commitment to a particular model of human nature and social behavior, namely, the traditional growth ethos that inspired and sustained developed countries for centuries, and which most developing countries still seek to emulate. This model has become counter-productive and the planet’s physical endowment can no longer accommodate such an expansionist worldview. The planet is experiencing negative growth, resource domination, environmental degradation, and species elimination. It is time to examine the underlying social commitments that determine the way we use the environment and the cumulative social impacts of our individual choices. (December 1996) Copyright ©2002 Olivier Serrat