If it's Good for the Environment, is it Bad for the Economy?

If it's Good for the Environment,is it Bad for the Economy?

If it's Good for the Environment,is it Bad for the Economy?

AS AQA Edexcel OCR

1 Markets and market failure Markets – how they work The market system

2 The national economy Markets – why they fail Market failure and government intervention

3 Markets at work Managing the economy The national and international economy

A2 AQA Edexcel OCR

1 Working as an economist Industrial economics

2 Business economics and the distribution of income

a. Labour economics: or b. Development economics

Two from a. Economics of work

and leisure b. Transport economics c. Economics of

Development d. The UK economy

3 Government policy, the national and international economies

The UK in the global economy

Economics in a European context

"This report makes clear that in the future, business needs to be green to grow,“ said the CBI's director

general, Richard Lambert. “To manage their costs and to maintain the trust of their customers, they will need to build carbon management into their corporate DNA.”

Business has already made significant progress in responding to the climate change agenda. It is well

placed to make an early and decisive contribution to finding and implementing solutions to the challenge of

climate change.

“Climate change - everyone's business”Report of the CBI Climate Change Task Force

“Climate change - everyone's business”Report of the CBI Climate Change Task Force

Priorities Incorporate climate change policies into its DNA.

Consumer demand will stimulate competition to produce greener alternatives to current products and services, and reward those businesses that take a lead. In the low carbon future, companies will have to be green to grow.

Redouble efforts to improve energy efficiency, by focusing on areas such as transport and buildings.

Work with employees and the supply chain to reduce emissions, and adapt the current workplace to cope with the climatic and other changes that are already likely as a result of past CO2 emissions.

Measure its carbon footprint, and develop reporting systems to benchmark performance.

Provide consumers with the reliable communications and product developments they will require.

Priorities Incorporate climate change policies into its DNA.

Consumer demand will stimulate competition to produce greener alternatives to current products and services, and reward those businesses that take a lead. In the low carbon future, companies will have to be green to grow.

Redouble efforts to improve energy efficiency, by focusing on areas such as transport and buildings.

Work with employees and the supply chain to reduce emissions, and adapt the current workplace to cope with the climatic and other changes that are already likely as a result of past CO2 emissions.

Measure its carbon footprint, and develop reporting systems to benchmark performance.

Provide consumers with the reliable communications and product developments they will require.

The Environmental

Problem

The Environmental

Problem

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

The environmental problem Use of the environment as:

an amenity a source of primary products a dump for waste

(Clipart for the environment: e.g. countryside scene)

Goods and services

Labour

Waste

The economy and the environmentThe economy and the environment

Resources Amenity value

The environmental problem

Use of the environment as: an amenity

a source of primary products

a dump for waste

The environmental problem

Use of the environment as: an amenity

a source of primary products

a dump for waste

Conflicts between these uses productive resource v. amenity value

dump for waste v. amenity value

dump for waste v. productive resource

Conflicts between these uses productive resource v. amenity value

dump for waste v. amenity value

dump for waste v. productive resource

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of

environment Accelerated degradation

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of

environment Accelerated degradation

The environmental problemThe environmental problem

Totaldamage

Accelerating environmental damage

O W1

Env

ironm

enta

l dam

age

Waste

Cause for optimism? Increased price of non-renewables

Cause for optimism? Increased price of non-renewables

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

The environmental problemThe environmental problem

Oil prices(Brent crude)

Oil prices(Brent crude)

Technological developments Public opinion Green business Government attitudes/action

Technological developments Public opinion Green business Government attitudes/action

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables

Population pressure / limited resources Problem of diminishing returns Absorptive capacity of environment Accelerated degradation

Cause for optimism? Increased price of non-renewables

The environmental problemThe environmental problem

BUT growing damage BUT growing damage

The OECD environmental 'traffic lights'The OECD environmental 'traffic lights'

USA

Germany

BelgiumSweden

UK Spain

Car

s pe

r th

ousa

nd p

opul

atio

n

W Germany

Increase in car ownershipIncrease in car ownership

Energy and Transport in Figures (EC, 2007); Federal Highway Administration: http://www.fhwa.dot.gov/ohim/qfvehicles.htm

Italy

An Optimum Use of the

Environment

An Optimum Use of the

Environment

An optimum use of the environmentAn optimum use of the environment

Different approaches to sustainability

The free-market approach Prices reflect scarcity of resources

The social efficiency approach Market failures: can be corrected

The conservationist approach Care for environment for its own sake: importance of

sustainable development

The Gaia approach Deep green approach:

environment has rights

Different approaches to sustainability

The free-market approach Prices reflect scarcity of resources

The social efficiency approach Market failures: can be corrected

The conservationist approach Care for environment for its own sake: importance of

sustainable development

The Gaia approach Deep green approach:

environment has rights

O

D = MSB

Q2

Output of good

Cos

ts a

nd b

enef

its (

£)Optimum level of an activity that involves pollutionOptimum level of an activity that involves pollution

Q1Q3 Free-marketoutcome

Conservationist approach

MSC

S = MPC

MSC1

MPC1

Marginalpollution

externality

Sociallyefficient output

Gaiamaximum

output

Q4

Market effects for green companies Short term

Often higher costs– BUT can reduce costs in some cases (e.g. reducing plastic bags)

Loss of competitive advantage BUT changing consumer tastes

– Fair trade movement– Ethical investment movement– Environmental auditing

Long term Regulations are likely to get tighter around the world Growing stakeholder pressures around the world

– Consumers, shareholders, employees, local communities

Competitive advantage from investment in green technology

Market effects for green companies Short term

Often higher costs– BUT can reduce costs in some cases (e.g. reducing plastic bags)

Loss of competitive advantage BUT changing consumer tastes

– Fair trade movement– Ethical investment movement– Environmental auditing

Long term Regulations are likely to get tighter around the world Growing stakeholder pressures around the world

– Consumers, shareholders, employees, local communities

Competitive advantage from investment in green technology

“Climate change - everyone's business”Report of the CBI Climate Change Task Force

“Climate change - everyone's business”Report of the CBI Climate Change Task Force

Market forces will drive big changes, but they will not by themselves be enough to do the job. The full range of public policies must be deployed to create the right incentives.

Government priorities must include promoting an effective market price for carbon

revenue-neutral tax reform (such as changes to business rates and council tax) to reward greener behaviour

bigger, more focused R&D programmes to finance new technologies and solutions until they become commercial.

Market forces will drive big changes, but they will not by themselves be enough to do the job. The full range of public policies must be deployed to create the right incentives.

Government priorities must include promoting an effective market price for carbon

revenue-neutral tax reform (such as changes to business rates and council tax) to reward greener behaviour

bigger, more focused R&D programmes to finance new technologies and solutions until they become commercial.

Market FailuresMarket

Failures

Market failuresMarket failuresEnvironment as a public good

The global ‘commons’ Features of a public good

Non-excludability BUT rivalry

Over use at a zero price

Externalities External costs from pollution External benefits from ‘green’ activities Problems of identifying and measuring

IgnoranceInter-generational problems

Environment as a public good The global ‘commons’ Features of a public good

Non-excludability BUT rivalry

Over use at a zero price

Externalities External costs from pollution External benefits from ‘green’ activities Problems of identifying and measuring

IgnoranceInter-generational problems

Government Policy towards

the Environment

Government Policy towards

the Environment

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate

Government Environment PolicyGovernment Environment Policy

O

D = MSB

Q2

Output of good

Cos

ts a

nd b

enef

its (

£)

Q1

MSC

S = MPC

Optimumgreen tax

A socially efficient green taxA socially efficient green tax

P

P – t

Green tax revenues as a % of GDPGreen tax revenues as a % of GDP

Green tax revenues as a % of GDPGreen tax revenues as a % of GDP

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate

Environmental (‘green’) taxes, chargesand subsidies Taxes on goods and services The optimum tax rate

Government Environment PolicyGovernment Environment Policy

Subsidies for R&D Problems with green taxes and subsidies

Subsidies for R&D Problems with green taxes and subsidies

Non-market-based policies Command-and-control systems Alternative standards

Technology-based standards Ambient-based standards Social impact standards

Effects on business Advantages Disadvantages

Voluntary agreements

Education

Non-market-based policies Command-and-control systems Alternative standards

Technology-based standards Ambient-based standards Social impact standards

Effects on business Advantages Disadvantages

Voluntary agreements

Education

Government Environment PolicyGovernment Environment Policy

Tradable permits Permit to emit

Credits can be traded

Market price for permits Efficient solution?

Use in USA

The EU carbon trading system

Effects on business

Basis for international agreements? Quotas for emissions or use of resources

Tradable permits Permit to emit

Credits can be traded

Market price for permits Efficient solution?

Use in USA

The EU carbon trading system

Effects on business

Basis for international agreements? Quotas for emissions or use of resources

Government Environment PolicyGovernment Environment Policy

Can we rely on governments?

Short-termism

The free-rider problem

The weakness of international agreements

Can we rely on governments?

Short-termism

The free-rider problem

The weakness of international agreements

Government Environment PolicyGovernment Environment Policy

If it’s good for the environment, is it bad for the economy?

If it’s good for the environment, is it bad for the economy?

Possibly, but not necessarily.

Environmental challenges offer challenges to business and the government.

Some will gain; some will lose.

Is it another case of survival of the fittest?

Or is it survival of the greenest?

Can Britain gain a competitive advantage?

Possibly, but not necessarily.

Environmental challenges offer challenges to business and the government.

Some will gain; some will lose.

Is it another case of survival of the fittest?

Or is it survival of the greenest?

Can Britain gain a competitive advantage?

To access these slides, go to:

www.economicsnetwork.ac.uk/archive/A-level_Dec07