Environment
and Development.
Why are these linked?
Environment as a source of
the raw material for development (agriculture accounts for over 50% of
employment)
Environment impacted by the
process of growth (think of air pollution and urbanization).
Until the 1980’s,
the debate tended to pit “conservationists” against “developmentalists”
in development dialog.
“Limits to
Growth”, Meadows et al. 1972.
Response was
growth theory incorporating natural resource stocks as a form of capital.
The Bruntland
Commission Report of 1987, in what is probably the most commonly cited
definition of sustainable development, defines the concept as “development that
meets the needs of the present without compromising the ability of future
generations to meet their own needs”.
Pezzy and Toman (2002) provide a
nice summary of the economic literature on sustainable development.
Pezzy and Toman report that a
“key finding from Dasgupta and Heal’s
1974 analysis was that the PV-optimal outcome is grim for far-distant generations.”
(p.6)
Estimate by Costanza
et al. (1997) of the value of natural capital and the flow of goods and
services from the environment. 33 trillion.
|
|
5%
discount |
10%
discount |
|
1 |
31390571008524 |
29859634795187 |
|
10 |
20015511770517 |
12140021558658 |
|
100 |
222352250970 |
1498197682 |
|
200 |
1498197682 |
68018 |
|
300 |
10094777 |
3 |
|
400 |
68018 |
0 |
|
500 |
458 |
0 |
|
600 |
0 |
0 |
Stiglitz, Solow also weighed in. Later, OLG models. Issue goes beyond equity to involve issues of
fairness to future generations.
A
key issue identified by Pezzy and Toman
is the distinction between “weak sustainability” and “strong sustainability” in
the literature.
The
difference revolves around the question of whether substitution between human
made capital and natural resources are limited (if so, then the focus is on
strong sustainability) or unlimited (the focus is weak sustainability).
That
is, is it acceptable to return to future generations manufactured capital of a
given value instead of a commensurate level of natural capital?
In a related fashion, to what extent are
natural and manufactured capital substitutes and to what extent are they
complements?
Environmental accounting / green accounting.
Is it sensible
that if you chop down the forest and sell the trees there is only a positive
impact on GNP? That is, you sell it
today, you can’t sell it tomorrow, so you take away tomorrow’s GNP to increase
today’s. Plus maybe you chop down the
trees and the soil runs off, also losing future potential GNP.
Developing
"greener" national accounts places environmental problems into a
framework that key economic ministries in any government will understand.
The prominent
indicators linking the macro-economy and the environment are measures of:
- "green" Net National Product
(green NNP) -- The NNP measures the annual flow of economic production,
based on market transactions, minus the value of depreciated capital
(around 10% or so). It thereby
leaves out the impact of economic activity on a very important national
asset - natural capital. Green NNP accounts for degradation and depletion
of natural capital.
NNP*=GNP-depreciation of
manufactured capital assets – depreciation of environmental capital.
- adjusted net saving (formerly called genuine saving) -- Building
on the same concept as the NNP, adjusted net saving measure the true rate
of savings in an economy after taking into account depletion of natural
resources and damage caused by pollution. Adjusted net saving is the true
saving rate in a country after accounting for investments in human
capital, depreciation of produced assets, and the depletion and
degradation of the environment.
|
|
Savings rate |
Physical capital dep rate |
Natural capital dep rate |
Net savings |
|
Sustainable |
|
|
|
|
|
|
20 |
7 |
10 |
+3 |
|
US |
18 |
12 |
3 |
+3 |
|
|
26 |
3 |
8 |
+15 |
|
|
|
|
|
|
|
Marginal |
|
|
|
|
|
|
24 |
12 |
12 |
0 |
|
|
|
|
|
|
|
Unsustainable |
|
|
|
|
|
|
3 |
1 |
9 |
-7 |
|
|
8 |
7 |
4 |
-3 |
Pearce and Atkinson, 1995
How do you measure the value
of natural capital, and how do you measure its change?
- wealth
accounting -- Another type of green accounting, this is the Bank's
analysis of estimates of the wealth of nations, exploring the composition
of wealth at a point in time (largely for the year 1994).
World Bank, 2006: Where is the Wealth of Nations?
Total Wealth, 2000 ($ per capita and percentage shares)
|
Income group |
Natural capital |
Produced capital +
urban land |
Intangible capital |
Total wealth |
Natural share |
Produced share |
Intangible capital
share |
|
Low-income countries |
1,925 |
1,174 |
4,434 |
7,532 |
26% |
16% |
59% |
|
Middle-income countries |
3,496 |
5,347 |
18,773 |
27,616 |
13% |
19% |
68% |
|
High-income OECD countries |
9,531 |
76,193 |
353,339 |
439,063 |
2% |
17% |
80% |
|
World [AQ: World avg?] |
4,011 |
16,850 |
74,998 |
95,860 |
4% |
18% |
78% |
Notes: All dollars at nominal
exchange rates. Oil states are excluded. (OECD) Organisation
for Economic Co-operation and Development
Source: Where is the Wealth of
Nations, World Bank 2006
Table 2.1 Total Wealth:
Top-10 Countries, 2000
|
Country (descending
order of per capita wealth) |
Wealth per capita ($) |
Natural capital (%) |
Produced capital (%) |
Intangible capital (%) |
|
|
648,241 |
1 |
15 |
84 |
|
|
575,138 |
2 |
14 |
84 |
|
|
513,424 |
2 |
11 |
87 |
|
|
512,612 |
3 |
16 |
82 |
|
|
496,447 |
1 |
14 |
85 |
|
|
493,241 |
0 |
30 |
69 |
|
|
493,080 |
1 |
15 |
84 |
|
|
473,708 |
12 |
25 |
63 |
|
|
468,024 |
1 |
12 |
86 |
|
Belgium-Luxembourg |
451,714 |
1 |
13 |
86 |
Source: Authors.
Table 2.2 Total Wealth:
Bottom-10 Countries, 2000
|
Country (descending
order of per capita wealth) |
Wealth per capita ($) |
Natural capital (%) |
Produced capital (%) |
Intangible capital (%) |
|
|
5,020 |
33 |
8 |
59 |
|
|
4,458 |
42 |
6 |
52 |
|
|
4,232 |
25 |
11 |
64 |
|
|
3,974 |
47 |
14 |
39 |
|
|
3,802 |
32 |
16 |
52 |
|
|
3,695 |
53 |
8 |
39 |
|
|
3,516 |
265 |
180 |
–346 |
|
|
2,859 |
42 |
7 |
50 |
|
|
2,748 |
147 |
24 |
–71 |
|
|
1,965 |
41 |
9 |
50 |
Source: Authors.
1994 estimates with some
different categories and focus.
|
|
Human Capital Wealth |
Manufactured Capital Wealth |
Natural Capital Wealth |
|
High Income |
67% |
16% |
17% |
|
Sub Saharan |
31% |
17% |
52% |
|
|
73% |
18% |
9% |
How do we value
these things? Trying
to come up with a measure of the value of natural capital stocks and the flows
of services that come from the environment.
Environmental goods and
services have a public goods aspect, so that provision by market mechanisms may
not be feasible. [recall public goods are non-rival,
non-excludable]
The free rider problem – An individual
has an incentive to benefit from the positive externality generated by
provision of a public good without paying the cost of public good
provision. Note paying the poor for
environmental services as an issue.
Public Good –
Vertical summation of individual WTP to arrive at social WTP.
Contingent
Valuation – ask people in a survey (often yes no) what value they place on a
specified change from the current situation.
Alberini et al. (1997). “Valuing Health Effects of Air Pollution in Developing
Countries: The Case of
Chestnut
et al. (1998). “Health Effects of
Particulate Air Matter Air Pollution in
Altaf and Hughes (1994). “Measuring
the Demand for Improved Sanitation Services” (
Hedonic Methods – value of
public good is embedded in private good that does enter the market. Try to decompose price.
Humavindu and Stage (2003). “Hedonic Pricing in Windhoek Townships” [houses close to
garbage dump, houses close to conservation and recreation area].
Though not as common in
developing countries, a long literature on the implicit price of air pollution
by cross city regressions; Smith and
Huang (1994), Palmquist and Israngkura
(1999) for some examples.
Valuation
of genetic resources in livestock and cropping systems (Special issue of
Ecological Economics, Scarpa, Gollin, Mendelsohn).
Travel Cost –we can recover the value people put on an environmental good by
summing the explicit and opportunity costs of accessing that environmental good.
Hegan et al. (2003). “Is the Tragedy of the Commons Likely? Factors preventing the dissipation of fuelwood rents in
Choe
at al. (1996). “The Economic Benefits of Surface Water
Quality Improvements in Developing Countries:
A Case Study of
Averting Expenditure – we can
recover the value of an environmental good by summing the value of expenditures
people undertake in the absence of that public good.
McConnell
and Rosado (2000). “Valuing Discrete
Improvements in Drinking Water Quality through Revealed Preferences.”
What is the relationship
between environmental degradation and economic growth?
Environmental
Kuznets curve.
Inverted U shaped curve
between environmental degradation and income per capita.
As incomes rise,
environmental impact rises.
When incomes rise enough, begin to address pollution issues, and
environmental degradation will decline.
Economic growth will
eventually address the negative environmental impact of the early phases of
growth.
Environmental quality is a
“luxury good” that we will address when we can afford it.
Supply side – we can afford
the regulation when richer.
“Grow first, clean up later”
Holds for a
subset of environmental measures (airborne pollutants for example). For other
measures, it does not hold.
Table 10.1 Particulate air pollution in the largest cities, 1995
|
Country |
City |
City |
SPM, |
|
Brasil |
San
Paolo |
16,533 |
86 |
|
|
Shangkhai |
13,584 |
246 |
|
|
|
9,690 |
- |
|
|
|
9,523 |
14 |
|
|
Mumbai |
15,138 |
240 |
|
|
|
8,621 |
271 |
|
|
|
26,959 |
49 |
|
|
|
11,609 |
84 |
|
|
|
16,562 |
279 |
|
|
|
9,286 |
200 |
|
|
|
9,269 |
100 |
|
|
|
7,911 |
- |
|
|
|
7,640 |
- |
|
|
|
16,332 |
61 |
World Bank
(WHO suggests less than 90 is
safe)
Some,
downward trend. Population with unsafe
water.
WB
|
Many still lack adequate
sanitation |
|
Share of population with access to
improved sanitation, 2002 (%) |
|
|
|
|
WB
Some,
upward trend. Waste per capita, carbon dioxide
emissions. CO2 Emissions per capita, in
tons.
|
|
1990 |
2000 |
2001 |
|
Developed |
12.0 |
11.0 |
11.0 |
|
Developing |
1.5 |
1.9 |
1.8 |
WRI online
World Development 1992 report. Development or
environmental quality a false dichotomy.
Complementary
aspects of the same agenda.
Without adequate
environmental protection, development will be undermined.
Without development,
environmental protection will fail.
“win-win” policies are the
objective in this case. “Tradeoffs vs. synergies”.
Increasing
emphasis on environmental management as a policy goal for developing country
governments.
Poverty and environmental
degradation are linked. Poor driven to degrade.
Addressing poverty will address environmental degradation.
Improve agricultural
productivity, less need to use currently uncultivated land.
Technology improvement in
agriculture can reduce poverty and be “land sparing”. New technology, reduced price of fertilizer,…
This is part of the story,
but it is also possible it increases the returns to farming, increasing overall
output.
Much of the environmental
damage is being done by the wealthy, not the poor.
Growing
field of bioeconomic modeling.
Economic decision model
embedded in the evolution of the ecosystem.
Will food for work lead to
increased investment in soil conservation in
Will highland cultivation
lead to reduced wages in lowland cultivation in the
How will the opportunity to
market new crops impact the environment and the economy?
Highland
[Link to health: The World Health
Organization (WHO) has assessed the contribution of a range of risk factors to
the burden of disease and revealed indoor air pollution as the 8th most
important risk factor and responsible for 2.7% of the global burden of disease
. Globally, indoor air pollution from solid fuel use is responsible for 1.6
million deaths due to pneumonia, chronic respiratory disease and lung cancer,
with the overall disease burden (in Disability-Adjusted Life Years or DALYs, a measure combining years of life lost due to
disability and death) exceeding the burden from outdoor air pollution five
fold. In high-mortality developing countries, indoor smoke is responsible for
an estimated 3.7% of the overall disease burden, making it the most lethal
killer after malnutrition, unsafe sex and lack of safe water and sanitation.]
What role does the government have in environmental management?
Negative externalities – in
the presence of a negative environmental externality, the perfectly competitive
market does not lead to the socially efficient use of resources.
Coordination issues such as a
tragedy of the commons problem. Number of animals to put on the pasture.
|
|
You |
|||
|
Me |
|
5 |
10 |
15 |
|
5 |
( 5, 5) |
(5, 10) |
(4, 12) |
|
|
10 |
(10, 5) |
(8, 8) |
(6, 9) |
|
|
15 |
(12, 4) |
(9, 6) |
(7, 7) |
|
Pareto improving outcome is not
arrived at due to failure to coordinate.
There is a role for government to resolve the tragedy of the
commons. Note commons and open access
differ. Also, commons and risk reduction
may be linked.
Commons:
Institutional arrangements: Ostrom et al.
Conflict – commons as a
source of conflict, conflict preventing use of commons.
Dynamics: Appropriation externality vs. provision
externality.
Risk
mitigating.
Localized
degradation and spatial heterogeneity in the commons.
Inequality
and use of the commons.
We can also describe a
situation where degradation occurs on private land due to poverty and market
failure that can be addressed by policy measures.
1) High return strategies entail significant fixed costs,
and may involve increased risk exposure.
2) Poorer households lack capital to undertake
investments and have less ability to expose themselves
to risk.
3) Substitute natural capital for financial capital.
Do policies “crowd out” or
“crowd in” environmentally friendly investments?
Government policy can reduce
risk exposure and address credit issues.
Note that the government is
not the only source of environmental regulation.
Traditional rules and
regulations are often in place in developing country societies.
The appropriation of this
role by the state can undermine the traditional, functioning system, thus
making things worse.
However, also note that
traditional systems have to adapt to new, changing circumstances. What determines success or failure here?
What is the role of community
management of natural resources, and how is this to be reconciled with the
functioning of a state?
Environment
and vulnerability.
Economic development can
suffer due to adverse environmental shocks.
Drought, flood, hurricanes,
tsunamis, mudslides, earthquakes,…
Loss of
life.
Link to
urbanization.
Asset loss.
Humanitarian issues,
consumption smoothing, asset smoothing,…
Economic development may be
taking place in the context of environmental change.
“…a 2.5 degree C rise in
average temperature could decrease the net returns to cropland by $16 billion
each year in SSA” The
Wealth of Nations.
In either case, there is a
role for improved information systems.
Improve quality of forecasts.
Improve quality of information
delivery.
Develop technology that
allows people to act on this information.
Develop infrastructure that
allows people to act on this information.
Develop extension services
that present and support adoption on new technologies.
Coordinate producers to allow
access to markets that buy what is produced using this new technology.
Protection
of genetic resources in light of this changing system.