Final Exam (Unit 3-5) Flashcards
(34 cards)
The Malthusian theory
- As early as 1800, English economist Robert Malthus pointed out the possibility of a limit to economic growth, when he observed the population grew in geometrical progression while food production grew in arithmetic progression.
- According to Malthus, poverty pockets in England were proof of the inability of the economy to produce enough food.
- Although Malthu’s statistical observations were really advanced for his time, his predictions were finally proved wrong, because he failed to foresee the importance of technological developments.
The limits of growth (1972)
Trough a series of computer simulations, the report concluded that the limits to growth were to be reached during the 20th century, due to the lack of availability of agricultural land, scarcity of non-renewable resources and the limit of the ecological system to assume larger quantities of waste.
Why was it wrong? Underestimated price as a mechanism to deal with scarcity
- price rice and demand goes down, then the stock is not used as fast as we thought it would
The three main services the environment provides to the economy:
- resources
- direct enjoyment
- waste disposal
The environmental Kuznets curve
- Two variables: GDP per capita and environmental degradiation
-The relationship between these two variables had an inverted U shape: income distribution became more inequitable in a first moment, but inequality began to decrease once a certain level of growth was reached
-In the first part of economic development the environment aspect decreases, but once it reaches a certain point and economic development is better we start protecting the environment –> based in “the gap of power” concept
- Problem: difficult to prove if its true or not- main reason is we don’t have historical environmental data available- we only have recent data
Possible explanations of the EKC hypothesis (Kuznetsk Curve)
1) Equity of income distribution
2) International trade: the pollution haven hypothesis
3) Structural change and technical progress
4) Energy intensity
5) Institutional framework
6) Consumer´s preferences
Pollution havens
As environmental degradation rises, more severe regulations are imposed → firms relocate production to low-income countries with less strict environmental regulation.
–> This may have been the case for developed countries but may not be feasible for current developing countries : the world is finite and there may be no other countries to relocate.
Jevons paradox
A theory that says the consumption of a certain good increases as the efficiency of its use increases as well
- Example:
Gasoline- if cars use less gasoline the consumption will be lower- no, because then the use of cars become cheaper, more people use it and the consumption increases as well
- another example is for flights- even more people travel since its cheaper so the fact it uses less gasoline than before doesn’t change anything
Empirical approach to the EKC:
Empirical studies about the EKC face important problems :
- It is difficult to isolate the effect of different variables that are usually related to one another.
- Some variables that should be studied are difficult to quantify ( how do we measure environmental degradation?)
- Historical environmental data is not available
EKC processes were firstly observed in developed countries, but it is dangerous to extrapolate their history to developing ones, as initial global conditions were not the same.
Economic growth vs economic development
Economic growth and economic development are related concepts, but they are not equivalent.
▪ Economic growth refers to the increase of the aggregate demand (GDP growths).
▪ Economic development includes technological, institutional and social transformations.
If we have economic development– > we normally have economic growth
If we have economic growth –> doesn’t not mean we have economic development
Resources and development in developing countries:
If initial growth is based on the exploitation of non-renewable resources or overexploitation of renewable ones (beyond their renewing capacity), income obtained should be invested in long term productive capital (material – infrastructure – or immaterial – education, stable institutions, governmental agencies, etc. –).
If this investment does not occur (for example, because the exploitation is made by foreign corporations that take their profits out of the country), the economy will grow in a first moment, but economic development will not occur.
Evolution of environmental indicators (3 indicators)
1) Indicators that improve from first stages of economic development: access to drinking water and sanitation services.
2) Indicators that deteriorate in a first moment, but improve once a certain level of development is reached: air pollution provoked by sulphur dioxide or particulate matters.
3) Indicators that deteriorate progressively from the first moment: greenhouse effect gases emissions or waste production.
GDP
GDP is the monetary measure of all final goods and services produced in a certain territory in a specific period of time.
GDP is the most used measure to describe economic growth, as well as the “richness” of any country. However, some precautions should be taken when using it as a reliable measure of development.
What is not included in GDP:
- Domestic work is not included in GDP
- Its does not include distributive variables
- Leisure value is not included in GDP
- Environmental damage is not explicitly considered.
- Natural resources do not receive proper consideration.
Adjusted GDP
GDP fails to represent environmental factors when valuing economic growth. In order to improve the representation of environmental considerations, some adjustments should be done.
Adjustments related to the use of resources:
- Measuring GDP implies knowing the current stock of productive assets, to see how these assets grew or got reduced during a period of time.
- Environmental resources should be included in that measure, since natural capital is a necessary input for any productive system.
Environmental services:
- The environment provides services not included in GDP. For instance, forests provide recreational services and protect crops from wind and soil erosion.
- Measuring the value of these services is difficult, but can be done through sophisticated statistical methods.
→ example: forest
→ the value of the environmental services are difficult to measure since we cant measure them like markets
Ways to value the environment (two methods):
1) Revealed preferences methods: take data from another market in order to approximate the value of an environmental good
- Hedonic prices, cost of travel and cost of maintenance
- Example: national parks- use real estate markets
- Example: US lake- used the increase of value for the houses because of the lake/the view
2) Stated preferences methods: ask consumers what they believe the value of certain environmental goods are- make a survey
Sustainable development and inequality
Higher inequality is related to lower levels of sustainability
Why?
- Highly uneven distributions require higher levels of growth required to lift people out of poverty. In other words, we would need smaller growth to end with poverty if that growth was focused on poorest people.
- Higher inequality is related with the overconsumption of private goods and weaker demand of public and merit goods
Ecological footprint
Is a measure of how much area of biologically productive land and water an individual, population or activity requires to produce all the resources it consumes and to absorb the waste it generates, using prevailing technology and resource management practices.
Biocapacity
Is the capacity of ecosystems to regenerate what people demand from these surfaces. The ecological footprint and biocapacity are related through another concept : carrying capacity.
Carrying capacity
Is the maximum population size of a given species that can be indefinitely sustained by an ecosystem.
- It is often determined by the abundance of a certain resource. The nature of this resource depends on the environmental conditions of the ecosystem.
Example:
What resource is it in Spain? Water- dry country
In England: Water is not a problem, more likely it is land with the population density
European Law- shared competence
EU and member states can both pass legislation, applying the subsidiarity principle : internal market; social policy; economic cohesion; agriculture; environment etc..
The subsidiarity principle
Environment is a shared competence. Therefore, the EU will only intervene if its action is more effective of that of the individual member states.
- Most environmental problems happen at a global scale and the fight against their causes cannot be addressed at a national scale. Consequently, the EU has passed legislation on most environmental issues.
Most environmental policies take the form of:
Directives! Not regulations or decisions!!
Regulations are acts that apply automatically and uniformly to all EU countries as well as to EU institutions.
Directives require EU countries to achieve a certain result, but countries are free to choose how to do so. Directives should be incorporated into national law. This process is known as transposition ( the deadline to do is generally 2 years).
Decisions are acts specially addressed to a subject (an EU institution, member states, firms, individuals.)
European Environmental Law- Action principles on environmental matters
Precautionary Principle → The lack of absolute scientific certainty should not prevent action if the consequences of inaction are unacceptable.
Preventive action → damages to the environment should be avoided whenever possible, instead of restoring them once produced.
Polluter pays → the agent benefiting from an environmentally damaging activity should be the one to pay for the costs of that damage.
Example: Use of pesticide and the EU says no because they dont know the effects of it: The precautionary principle- it may be dangerous, we dont know, so just in case
Two legal instruments for the government to regulate economic impact on the environment:
1) The integrated Environmental Authorization (IEA)
2) The environmental impact declaration (EID)
