Environment and Development.
Concepts and measures in environment
and development.
First, why are these two ideas linked?
Both are by their nature dynamic
processes that interact.
Environment can be seen 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 annual flow of goods and services from the environment. 33 trillion.
In contrast, annual GDP in 1997 was around 20 trillion.
However, with
discounting, we see there may be a problem.
|
|
5% discount |
10% discount |
|
0
|
33 trillion |
33 trillion |
|
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, overlapping
generation (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?
World Development 1992 report. Development or environmental quality is 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.
Reducing poverty and reducing environmental
degradation are logically linked. Poor
driven to degrade. Addressing poverty
will address environmental degradation.
“Poverty-environment nexus”
For example, improve agricultural
productivity, less need to use currently uncultivated land. (land sparing argument)
However, how 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. Answer
specific questions for an environmentally defined area:
Will food for work lead to increased
investment in soil conservation in Ethiopia?
Will highland cultivation lead to
reduced wages in lowland cultivation in the
Allow predictions about how a system
will evolve, and simulation methods to predict how the path may change if a
parameter changes (particularly if a policy relevant variable changes).
Back on the macro side,
we can consider 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.
Or if you build a
factory, and produce things that contribute to GNP, should we not also reduce
GNP by the value of the damage to the ecosystem if there is damage?
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).
1994 estimates for some areas.
|
|
Human Capital Wealth |
Manufactured Capital Wealth |
Natural Capital Wealth |
|
High Income |
67% |
16% |
17% |
|
Sub Saharan |
31% |
17% |
52% |
|
|
73% |
18% |
9% |
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 |
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 ($) |
Natural capital (%) |
Produced capital (%) |
Intangible capital (%) |
|
|
648,241 |
1 |
15 |
84 |
|
|
575,138 |
2 |
14 |
84 |
|
|
513,424 |
2 |
11 |
87 |
|
|
512,612 |
3 |
16 |
82 |
|
|
496,447 |
1 |
14 |
85 |
|
|
493,241 |
0 |
30 |
69 |
|
|
493,080 |
1 |
15 |
84 |
|
|
473,708 |
12 |
25 |
63 |
|
|
468,024 |
1 |
12 |
86 |
|
Belgium-Luxembourg |
451,714 |
1 |
13 |
86 |
Source: Where
is the Wealth of Nations, World Bank 2006
Table
2.2 Total Wealth: Bottom-10 Countries, 2000
|
Country (descending
order of per capita wealth) |
Wealth per capita ($) |
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: Where
is the Wealth of Nations, World Bank 2006
What is the relationship between
environmental degradation and economic growth – can growth cause and then
prevent environmental damage?
Environmental Kuznets curve, where
instead of inequality on the y-axis, we put a measure of an environmental ‘bad’.
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 |
|
|
|
|
|
http://www.worldbank.org/depweb/beyond/global/chapter10.html
World Bank
(WHO suggests less than 90 is safe)
Some, downward trend in
environmental bad as income increases without much evidence of an initial
increase. Population with unsafe water
|
Indicator 31.
Proportion of population with access to improved sanitation, urban and rural |
Some, upward trend. Waste per capita, carbon dioxide
emissions.
If growth alone won’t take care of the problem, what is the case for government
action?
One case is that there may be a public goods aspect of environmental goods
and services, 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.
Methods for revealing
WTP from environmental economics can be applied in developing countries:
Contingent Valuation –
ask people in a survey (often yes no) what value they place on a specified
change from the current situation.
Hedonic Methods – value of public
good is embedded in private good that does enter the market. Try to decompose price. Air quality,
valuation of genetic resources in livestock and cropping systems
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.
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.
Another case revolves around the
idea of negative externalities – in the presence of a negative environmental
externality, the perfectly competitive market does not lead to the socially
efficient use of resources.
Taxes, quotas, fees are the common
tools used here.
A particular case is illustrated by
the tragedy of the commons, and commons are found in various forms in
development. Basic example of the 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.
Commons:
Institutional
arrangements: Ostrom et al.
Conflict – commons as a source of
conflict, conflict preventing use of commons.
Dynamics: Appropriation externality vs. provision
externality.
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.
A basic example is a credit market
failure.
High return / less environmentally
damaging strategies entail significant fixed costs.
Poorer households lack capital to
undertake investments meeting these fixed costs.
They may substitute natural capital
for financial capital.
Title to land, land reform, credit
markets…all may have an environmental aspect to consider in addition to the
agricultural productivity or poverty reduction issues we have looked at before.
Note that in developing countries it
may be that 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?
Finally, consider environment and
vulnerability. We can think of
environment as the source of risk or uncertainty.
Economic development can suffer due
to adverse environmental shocks.
Drought, flood, hurricanes,
tsunamis, mudslides, earthquakes,…
Loss of life.
Humanitarian issues.
Urbanization make make it more
likely a given environmental shock has a negative impact.
Asset loss in the shock may have
long term consequences.
Economic development may be taking
place in the context of environmental change so that accomplishments may be
threatened in the future / challenges may be increasing over time.
“…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 case to
be made for for improved information systems, technology development,
extension, and infrastructure.
Protection of genetic resources in
light of this changing system.
Improve quality of forecasts / warnings.
Improve quality of information
delivery.
Develop technology and
infrastructure that allow people to act on this information.
Develop extension services that
present and support adoption on new technologies.