703

Sustainability is a relatively new and evolving concept in contemporary environmental science. We have seen that something is sustainable when it meets the needs of the present generation without compromising the ability of future generations to meet their own needs. Although human needs can be defined in various ways, for our purposes we identify the basic necessities as access to food, water, shelter, education, and a healthy, disease-free existence. In order for these five necessities to be available, there must be functioning environmental systems that provide us with breathable air, drinkable water, and productive land for growing food, fiber, and other raw materials—the ecosystem services that we have described in this book.

The quest to obtain resources and increase well-being—the status of being healthy, happy, and prosperous—has caused individuals and nations to exploit and degrade natural resources such as air, land, water, wildlife, minerals, and even entire ecosystems. To address questions of sustainability, we need to be able to understand where human well-being and the condition of environmental systems are in conflict. To do this we will consider economic analysis, ecological economics and ecosystem services, and the role of regulatory agencies in bringing about environmental regulation and protection.

Learning Objectives

After reading this module you should be able to

704

In an attempt to reduce environmental harm, researchers and policy makers have experimented with a variety of techniques to encourage consumers to change their behavior in ways that would benefit the environment. We explored some of these techniques in Chapter 10 where we discussed externalities and in Chapter 15 where we discussed the buying and selling of air pollution allowances as well as charging a fee or tax for the use of certain resources or for the emission of certain pollutants. Economics is the study of how humans allocate scarce resources in the production, distribution, and consumption of goods and services.

Throughout this text we have already applied many concepts from the field of economics. When we looked at the problem of externalities and pollution, we were using economic theory. Life-cycle analysis is very similar to the cost-benefit analysis that economic policy makers use. In this section we will look at some basic economic concepts and learn how they can be applied to environmental issues.

Supply, Demand, and the Market

In today’s world, most economies are market economies. In the simplest sense, a market occurs wherever people engage in trade. In a market economy, the cost of a good is determined by supply and demand. When a good is in great demand and wanted by many people, producers are typically unable to provide an unlimited supply of that good. Price is the method that producers and consumers use to communicate the value of an item and to allocate the scarce item.

The graph shown in FIGURE 65.1 illustrates the relationship between supply, demand, and price. The supply curve (S) shows how many units that suppliers of a given product or service—for example, T-shirts—are willing to provide at a particular price. Factors that influence supply of a good include input prices (the cost of the resources used to produce the item), technology, expectations about future prices, and the number of people selling the product. For example, if you are the only person selling T-shirts and many people want them, you will be willing to make the investment required to produce many T-shirts. However, if a new T-shirt seller comes along, because you will be concerned that you will not sell as many, you will decrease your production because you now must share the market with another supplier.

The demand curve (D) shows how much of a good consumers want to buy. Factors that influence demand include income, prices of related goods, tastes, expectations, and the number of people who want the good. For example, if your boss gives you a raise, you may feel like you can afford that T-shirt you have been wanting to buy.

Notice that the demand curve slopes downward. In other words, as the price of T-shirts rises, the demand for them declines. This illustrates the law of demand, which states that when the price of a good rises, the quantity demanded falls and when the price falls, the quantity demanded rises. Conversely, the supply curve slopes upward. This reflects the law of supply, which states that when the price of a good rises, the quantity supplied of that good will rise and when the price of a good falls, the quantity supplied will fall.

The laws of supply and demand make intuitive sense. After all, if you are selling T-shirts and you find that your profits have shrunk, you are more likely to use your resources to produce and sell something more popular, and more profitable. If you are a consumer of T-shirts, the less expensive they are, the more you are inclined to buy.

With these different interests, how do demand and supply ever meet? In a market system, without any restrictions such as taxes or other regulations, the price of a good will come to an equilibrium point (E) where the two curves on the graph intersect. Here the quantity demanded and the quantity supplied are exactly equal. At this price, suppliers find it worthwhile to supply exactly as many T-shirts as consumers are willing to buy.

705

Unfortunately, markets—composed of many buyers and sellers—do not always take all costs of production into account. We have already seen that this is the case in situations of land degradation where people, organizations, or even governments deplete or damage a natural resource because they do not bear any direct costs for doing so. As we saw in Chapter 10, the cost of using a resource that is not included in the purchase price is called an externality. When we pollute air or water without directly paying for it, that is also an externality. When we account for the costs of externalities created by manufacturing a good or offering a service, the price changes. This, in turn, affects demand and supply.

Let’s look at the example of coal. The dollar cost of coal-generated electricity includes the cost of the coal, the cost of paying people to operate the power plant, and the cost of electricity distribution to customers. However, the cost to the environment of emitting sulfur dioxide, carbon dioxide, and other waste products, all of which are negative externalities, is largely missing from the price customers pay. However, these negative externalities certainly add costs, both financially and in terms of the well-being of people living downwind from the power plant. For example, someone with a respiratory ailment could incur greater medical expenses because of increased sulfur dioxide and particulates in the air. There may be provisions requiring polluters to pay some of the costs related to these emissions, but often these payments are not sufficient to cover the total cost of the pollution. In addition, they often do not reach the affected individuals or groups.

If the dollar cost of a good included externalities such as the expenses incurred by emitting pollutants into the air, or the expenses related to removing the pollutants before they were emitted, then the cost for most items produced would be greater. This could only occur if a tax were imposed by a regulatory agency. When the cost of production rises due to this tax, the supply curve shifts to the left, from S to S₁ as shown in FIGURE 65.2. The new market equilibrium (E₁) is at a higher cost and, as a result, fewer items are manufactured and purchased. In other words, including the externalities raises the price and lowers the demand. Therefore the price that includes externalities is more reflective of the true cost of the item.

Measuring Wealth and Productivity

There are a variety of ways of measuring wealth and productivity. While there is no consensus on which method is most accurate and each has shortcomings, researchers do agree that measuring wealth and productivity can be a useful way of examining the health of an economy. In this section we will look at the most common and widely accepted measure of wealth and productivity and then look at alternatives.

GDP

Economists use different national economic measurements to gauge the economic wealth of a country in terms of its productivity and consumption. Most of them do not take externalities into account. The most common of these measurements is the gross domestic product (GDP), which refers to the value of all products and services produced in a year in a given country. GDP includes four types of spending: consumer spending, investments, government spending, and exports minus imports. As a measure of well-being, GDP has been criticized for a number of reasons. Because costs for health care contribute to a higher GDP, a society that has a great deal of illness would have a higher GDP than an equivalent society without a great deal of illness. Such an inclusion does not appear to be an accurate reflection of the “wealth” or “well-being” of a society. And because externalities such as pollution and land degradation are not included in GDP, measurement of GDP does not reflect the true cost of production.

Some social scientists maintain that the best way to improve the global environment is to increase the GDP in the less developed world. In Chapter 7 we examined the relationship between rising income and falling birth rates; as GDP increases, population growth slows. This, in turn, should lead to a reduction in anthropogenic environmental degradation. Wealthier, developed countries are able to purchase goods and services that will lead to environmental improvements—for example, pollution control devices like catalytic converters— and to use their resources more efficiently. On the other hand, as we have seen, developed countries use many more resources than developing countries, which leads to more environmental degradation.

The GPI

706

We have seen that GDP is an incomplete measurement of the economic status of a country because it only considers production. Some researchers attempt to address this shortcoming by using another measurement that is known as the genuine progress indicator. The genuine progress indicator (GPI) is a measure of economic status that includes personal consumption, income distribution, levels of higher education, resource depletion, pollution, and the health of the population. As shown in FIGURE 65.3, while GDP in the United States rose steadily from 1950 through 2004, GPI has been virtually level since about 1980. A number of countries, including England, Germany, and Sweden, have recalculated their GDP using the GPI. They have found that their overall wealth, when human and environmental welfare are included, has steadily declined over the last 3 decades.

The Kuznets Curve

To address some of the shortcomings of GDP as a measurement of wealth, some environmental economists and scientists advocate using a model known as the Kuznets curve. The Kuznets curve, shown in FIGURE 65.4, suggests that as per capita income in a country increases, environmental degradation first increases and then decreases. The model is controversial because it is not easily applicable to all situations. For example, despite the increasing affluence of developed countries, carbon dioxide emissions and municipal solid waste (MSW) generation have both continued to increase. It is possible that these developed countries are not yet wealthy enough to deal with these problems effectively, but it is also possible that there are certain problems that cannot be solved simply with greater wealth. For example, as countries become wealthier, residents tend to use more fossil fuel for travel, to consume more resources, and to generate more waste.

Sometimes less developed countries experience technological leaps without going through each phase of technological development. These kinds of changes may influence the shape of the Kuznets curve or influence how well it characterizes a given situation. Technology transfer happens when less developed countries adopt technological innovations that were developed in wealthy countries. For example, in many less developed countries, a significant proportion of the population uses cell phones without ever having had access to a network of landline telephones. A situation in which less developed countries use new technology without first using the precursor technology is known as leapfrogging. Leapfrogging occurs whenever new technology develops in a way that makes the older technology unnecessary or obsolete. This allows the developing nations to take advantage of the expensive research, development, and experience of the more developed nations.

707

Solar energy is a particularly good example of leapfrogging. In industrialized nations, solar electricity has not been cost-competitive with gas- or coal-generated electricity. However, it has been very successful in nations in Africa, Asia, and South America that lack the resources to build a reliable electrical distribution grid. Solar energy is a small-scale energy source not dependent on outside connections to an electrical grid (see Chapter 13). In fact, it is possible that many less developed countries will continue to increase their use of solar energy and skip the step of building a nationwide electrical grid, much like what has happened with cell phones versus landlines for telephone service. Solar energy allows developing countries to produce and distribute their own electricity without investment in the massive infrastructure of an electrical distribution grid that would be needed in a developed country (FIGURE 65.5).

Capital, or the totality of our economic assets, is typically divided into three categories: natural, human, and manufactured. Natural capital refers to the resources of the planet, such as air, water, and minerals. Human capital refers to human knowledge and abilities. Manufactured capital refers to all goods and services that humans produce. While economists usually base their assessment of national wealth on productivity and consumption, environmental scientists point out that all economic systems require a foundation of natural capital. Without natural capital, humans would not be able to produce very much and would probably not survive.

Environmental and Ecological Economics

Some advocates of a purely free-market system believe that as long as market forces are left alone, human work and creativity will find solutions to problems of natural resource degradation and depletion. But as we have seen, externalities are not assessed appropriately if the cost of environmental degradation is not charged to the individuals responsible for that degradation. A market failure occurs when the economic system does not account for all costs. Among those economic thinkers who have sought ways to respond to market failures, many have become part of the discussion in the fields of environmental economics and ecological economics. Environmental economics is a subfield of economics that examines the costs and benefits of various policies and regulations that seek to regulate or limit air and water pollution and other causes of environmental degradation. Ecological economics is the study of economics as a component of ecological systems rather than as a distinctly separate field of study. Ecological economics is a method of understanding and managing the economy as a subsystem of both natural and human systems. It has as a goal the preservation of natural capital, the goods and services related to the natural world.

Environmental and ecological economists attempt to assign monetary value to intangible benefits and natural capital, a practice known as valuation. For example, they have developed methods for assessing the monetary value of a pristine nature preserve, a spotted owl, or a scenic view. One method is to calculate the revenue generated by people who pay for the benefit—for example, the amount tourists pay to visit a nature preserve would represent the dollar value of the preserve. Another method is to use surveys. They might ask a number of people how much they are willing to pay just to know that spotted owls exist, even if they are unlikely ever to see one. The most extensive assessments have attempted to determine the value of ecosystem services such as oxygen that plants produce or pollination that insects do. Although estimates vary, global ecosystem services might have a dollar value of approximately $30 trillion per year. The 2004 Millennium Ecosystem Assessment categorized the variety of services that ecosystems provide for the benefit of humans. In many cases, it is possible to estimate the cost of a particular service if it were provided using technology rather than naturally. For example, as we discussed in Chapter 3, New York City could have constructed a massive water purification system at a known cost. Instead, it chose to protect watersheds in the Catskill Mountains, a region north of New York City that supplies the city with water, so the water would not need expensive purification. Accordingly, the ecosystem service of water purification has a known value, which can be used to help calculate the total dollar value of ecosystem services.

708

Given all of the natural capital and ecological services distributed around the world, it is quite likely that human activities will generate multiple negative externalities. Economic tools can be used to incorporate the dollar cost of the externalities in the price of goods and services. We have seen examples of this with our discussions of charging for allowances to allow sulfur dioxide and carbon dioxide emissions. These economic tools can be used in many other ways as well. Typically, a tax or regulation calls for reducing externalities through a market-driven system. This system calls for the incorporation of negative environmental impacts of a commodity or service in its cost of production. For example, a car manufacturer would include in the cost of production for each car not only the cost of labor and natural resources, such as steel and water, but also the cost of the air pollution caused by the manufacturing process. Viewed this way, the cost of production of a car will immediately increase. Typically, the manufacturer would want to distribute at least part of this additional cost to the consumer by raising the price of the car. Calculating the full costs of a commodity or service by internalizing externalities will likely cause consumers to buy fewer items with high negative impacts because those impacts will be reflected in higher prices. The most obvious way for the costs of externalities to be included is by requiring the producer to pay them. This could be achieved through regulation, imposition of a tax, or some sort of public action mandating reparation for externalities or making it difficult for the company to produce its product in a way that pollutes. Much of the debate in environmental and ecological economics revolves around how best to impose the dollar cost on the producer.

Sustainable Economic Systems

Critics of our current economic system maintain that it is based on maximizing the utilization of resources, energy, and human labor. This encourages the extraction of large amounts of natural resources and does not provide any incentives that would reduce the amount of waste generated. A system analysis of the current economic situation, shown in FIGURE 65.6a, suggests that continuing with such a system is not sustainable. In the current system, large amounts of extracted resources and energy and relatively small amounts of ecosystem services are the inputs and large amounts of waste are the outputs.

709

A sustainable economic system, depicted in FIGURE 65.6b, will rely more on ecosystem services and reuse of existing manufactured materials and less on resource extraction. In this system, there is greater reliance on ecosystem services and less reliance on resource extraction that requires energy. It also takes some of the waste stream and reuses it in the production and consumption cycle, as indicated by the arrow labeled “Waste stream recycling.” Therefore, the cycle in FIGURE 65.6b would use more renewable energy, lessen negative externalities, and reuse more of the products that were destined for the waste stream. This model has led architects, environmental scientists, and engineers to a collaborative discussion of the optimal way to design, manufacture, use, and dispose of objects such as automobiles, houses, and consumer goods. Currently, a consumer purchases an object, such as an automobile or computer, and when that object has reached the end of its useful life, the consumer is responsible for its disposal. As we pointed out in Chapter 16, because the responsibility for the object rests with the consumer, there is no incentive for the manufacturer to make it easy to reuse or recycle the object. Some observers of the current situation have noted the irony that a can of a chemical oven cleaner purchased for $5 may cost $20 for disposal. These kinds of discussions have led to the cradle-to-grave and cradle-to-cradle analysis described in Chapter 16.

Because the cradle-to-cradle system includes human capital, resource, and energy inputs as well as a redirection of the waste stream, it gains even greater importance when we consider the entire economic system. FIGURE 65.7 shows an alternative approach to the previous diagram. In this case, while there is some waste disposal, a good fraction of materials that are used up contribute to the raw materials for new items. The ultimate goal is to produce a good that at the end of its useful life—as it approaches its “grave”—can be easily reused to make a new product. That is, most or all of the parts of an old product will become the “cradle”—the beginning of life—for the same or other products. An automobile would be ideal for a cradle-to-cradle system because each individual car contains a ton or more of steel and other metals as well as rubber, plastic, and a host of other materials that can be reused.