Economics and Environment

Effects of Economic Activities on

Environment
Table of Contents Section

Structure Of the Study

Introduction

Classification of Natural Resources

The Economics of Forestry Exploitation

Pollutant Taxonomy

Economics of Air Pollution

Economics of Water Pollution

What Can We Do?

Bibliography
 STRUCTURE OF THE STUDY

The study first gives a brief introduction about the

relationship between the humans and environment and also

between economic activities and the natural resources. It

then goes on to classify various natural resources and later

their effect on environment and policy measures taken. The

study particularly focuses on the policies and approaches

adopted in the US and Europe towards efficient handling of

natural resources and the overall environment.

 INTRODUCTION

It is a rare day when the newspaper does not cover a topic

related to natural resources or the environment. The supply

of electricity and water to households, farms and business;

disputes between states over water rights; pollution caused

by industry and traffic – these problems and many more are

of growing concern to numerous and more varied groups of

people (CSE 1982).

The interlinkages between the economy and the Environment

can be summarized in the following figure.

GOODS &SERVICE

PRODUCTION CONSUMPTION

FACTORS OF PRODUCTION

E1 E2

E3
E4 GLOBAL LIFE-SUPPORT SERVICES

ECONOMY-ENVIRONMENT INTERACTIONS EI- ENERGY

AND MATERIALS

E2- WASTE SINK

E3- AMENITY

Here we simplify the economy into two sectors:

 Production

 Consumption

Exchange of goods services and factors of production take

place between these two sectors. The environment is shown

here in two ways: as the three interlinked circles E1, E2 and

E3, and the all-encompassing boundary labeled E4. The

production sector extracts energy resources (such as oil)

and material resources (such as iron ore) from the

environment. These are transformed into outputs; some

useful (goods and services supplied to consumers) and some

which are waste products, such as SO2.There is some

recycling of resources within the production sector, shown

by the loop R1, and within the consumption sector, as shown

by the loop R2.

The environment’s first role, then, is as a supplier of

resources. Its second is as a sink, or receptor, for waste

products. The environment provides the economy with raw

materials, which are transformed into consumer products by

the production processes, and energy, which fuels this

transformation. Ultimately these raw materials and energy

return to the environment as waste products.

The environment also provides services directly to

consumers. The air we breathe, the nourishment we receive

from food and drink, and the protection we derive from

shelter and clothing are all benefits we receive directly or

indirectly from the environment.

The Self-Extinction Premises: Edward Gibbon in his ‘The

History of the Decline and fall of the Roman Empire’ writes

about Rome-

“In the time of the poet it was crowned with the golden roofs

of a temple; the temple is overthrown, the gold has been

pillaged, the wheel of fortune has accomplished her

revolution, and the sacred ground is again disfigured with

thorns and brambles... The forum of the Roman people,

where they assemble to enact their laws and elect their

magistrates is now enclosed for the cultivation of potherbs,

or thrown open for the reception of swine and buffaloes. The

public and private edifices, that were founded for eternity lie

prostrate, naked, and broken, like the limbs of a mighty

giant; and the ruin is the more visible, from the stupendous

relics that have survived in the injuries of time and fortune.”

Gibbon suggests that the Empire sowed the seeds for Rom’s

destruction itself. Though Rome finally succumbed to such

external forces as fires and invasions, its vulnerability was

based upon internal weakness.

The premise that societies germinate the seeds of their own

destruction has long fascinated scholars and the sources of

concern are not difficult to find. Since mid-century the world

has lost nearly one-fifth of the topsoil from its cropland, a

fifth of its tropical rain forest, and tens of thousands of plant

and animal species. Human activity has increased carbon

dioxide levels to the point where the global climate is being

affected. The protective ozone shield is being depleted. Dead

forests and lakes are common in parts of Europe.

 CLASSIFICATION OF NATURAL RESOURCES

A distinction is made between ‘material’ and ‘energy’

resources. This distinction relates to the conventional end-

uses of these resources, in the material (or mineral)

resources are utilized as part of the physical constituency of

commodities (iron ore, converted into steel, in car bodies;

copper in saucepans; copper in wires). (A mineral is defined

as a solid crystalline chemical element or compound in fixed

composition. A mineroid is a mineral, which occurs, in non-

solid form. Rocks are aggregates of one or more minerals. A

mineral deposit is an accumulation of specific mineral).

Energy resources, on the other hand, are converted into

heat and other forms of energy. Thus the chemical energy in

natural gas is converted into heat energy when gas is burnt

in domestic central heating boilers. Clearly, some resources

are used both as materials and energy resources; oil is the

prime example here, being used for propulsion in internal

combustion engines and to make plastic.

Mineral resources may be further divided into metallic and

non-metallic materials; the latter includes soils, water, and

sand. There are some 88 minerals occurring on earth. Of

these only 12 make up 99 percent of the earth’s crust.

One obvious distinction between resource types is in terms

of their potential for natural growth. It is usual, then, to

distinguish between ‘renewable’ and ‘nonrenewable’

resources, with the former classification reserved for those

resources exhibiting a positive natural rate of growth. This is

a clearer distinction than the classification into ‘exhaustible’

and ‘non-exhaustible’ resources, since even a renewable

source can be exhausted, and a non-renewable resource

may not be exhausted if it becomes uneconomic to extract

the last reserves.

 THE ECONOMICS OF FORESTRY

EXPLOITATION

Forests are considered as a separate natural resource

because they represent an unusual capital investment

problem where a long time lag exists between the decision

to invest in tree seedlings and the decision to harvest. At

any point of time a forester may be simultaneously deciding

to invest by replanting and to disinvest by clear-selling

mature trees, which are the result of investment decisions

taken some generations earlier.

Policies: Standing forests provide externalities, which

benefit society; however, if forests are privately owned, no

incentive exists in a free market to ensure that forests follow

a socially optimal rotation. In particular, maximizing private

timber values takes no account of the value society places

upon the non-timber values of a standing forest. To

counteract this market failure, the government can tax

private forest owners to induce them to follow socially

optimal forest rotations. Five forms of tax commonly apply

to forests:

 Yield Tax

 Site-Value Tax

 An Unmodified Property Tax

 Profit Tax

 Severance Tax
 POLLUTANT TAXONOMY

The amount of waste products emitted determines the load

upon the environment. The damage done by this load

depends on the capacity of the environment to assimilate

the waste products. This ability of the environment to absorb

the pollutants is known as absorptive capacity. If the

emission load exceeds the absorptive capacity, then the

pollutant accumulates in the environment.

Pollutants for which the environment has little or no

absorptive capacity are called stock pollutants. Stock

pollutants accumulate over time as emissions enter the

environment. Examples of this type are non-biodegradable

bottles tossed by the roadside; heavy metals, such as lead,

which accumulate in the soils near the emission source and

persistent synthetic chemicals such as dioxin.

Pollutants for which the environment has some absorptive

capacity are called fund pollutants. For these pollutants, as

long as the emission rate does not exceed the absorptive

capacity of the environment, the pollutants do not

accumulate. Examples of fund pollutants are easy to find.

The resident bacteria into less harmful inorganic matter will

transform many organic pollutants injected into an oxygen-

rich stream. Plant life and the oceans absorb carbon dioxide.

ABORBTIVE
CAPACITY OF
THE
ENVIRONMENT

POLLUTION POLLUTION EMISSIONS

DAMAGE ACCUMULATION LOAD

RELATIONSHIP BETWEEN EMISSIONS AND POLLUTION

DAMAGE
 ECONOMICS OF AIR POLLUTION

Delhi and Calcutta are amongst the most polluted cities of

the world. Stationary source air pollution and Mobile source

air pollution are the main reasons for damaging the ozone

and causing damage to monuments like Taj Mahal.

Stationary Source Air Pollution:

Attaining and maintaining clean air is an exceedingly difficult

policy task. In United States, for example, an estimated

27,000 major stationary sources of air pollution are subject

to control as well as hundreds of thousands of more minor

sources.

Conventional Pollutants

Conventional pollutants are relatively common substances,

found almost everywhere. In the US these pollutants are

called criteria pollutants. These pollutants are:

 Sulfur oxides

 Particulate matter
  Carbon Monoxide

 Ozone

 Nitrogen dioxide

 Lead

A 1994 U.S. EPA Report reveals that during the period from

1984 to 1993 carbon monoxide emissions were reduced by

37%, nitrogen dioxide emissions by 12%, and lead

emissions by89%. Particulate (dirt, dust, soot) levels

decreased 20% from 1988 to 1993.

Global Monitoring System, operating under the auspices of

the WHO and the UN Environment Program, monitors air

quality across the globe. Its reports reveal that these

experiences are typical of the industrialized, developed

nations only. Air quality in most developing nations has

steadily deteriorated, and the number of people exposed to

unhealthy levels of pollution in those countries is frequently

very high.
Regional and Global Air Pollutants:

The primary difference between regional and local pollutants

is the distance they are transported in the air. While the

damage caused by the local pollutants is in the vicinity of

emission, for regional pollutants the damage can occur at

significant distance from the emission point. The same

substances can be both local pollutants and regional

pollutants. Sulfur and nitrogen oxides and ozone are local as

well as regional pollutants.

Acid Rain

Acid rain, the popular name for atmospheric deposition of

acidic substances, is actually a misnomer. Acidic substances

are deposited not only by rain and other forms of moist air

but as dry particles as well. This causes considerable

damage to the environment.

 Most species of fish can not tolerate pH levels below 5.0

 Acidic deposition can increase the rate of deterioration of

some construction and culturally important materials such

 as galvanized steel, bronze, carbonate stone, and

carbonate based paints.

Ozone Depletion

In the troposphere, the proportion of the atmosphere closest

to the earth, ozone (O3) is a pollutant, and its presence has

been linked to agricultural damage as well as to some

adverse effects on human health.

Global Warming

One class of pollutants called the green house gases absorb

the long wavelength (infrared) radiation’s from the earth’s

surface and atmosphere, trapping heat that would otherwise

radiate into space.

Mobile Source Air Pollution:

Mobile source pollution refers to the pollution caused by the

various vehicles on the roads of the world today.

Mobility adds two new dimensions. On the one hand,

pollution is partly caused by the temporary location of the

source. On the other hand, it is more difficult to tailor

vehicle emission rates to the local pollution patterns, since

any vehicle may end up in many urban and rural areas

during the course of its useful life.

Policy Measures:

The policy steps required are the establishment of ambient

air quality standards. These standards set legal ceilings on

the allowable concentration of the pollutant in the outdoor

air averaged over a specified time period. These standards

have to be met everywhere, though as a practical matter

they are monitored at a large no of specific locations. Two

ambient standards are defined. The primary standard is

designed to protect human health. This is the first standard

to be determined, and it has the earliest deadlines for

compliance. The secondary standard is designed to protect

other aspects of human welfare from those pollutants having

separate effects.
 ECONOMICS OF WATER POLLUTION

Two primary types of water are susceptible to

contamination. The first, surface water, consists of the

rivers, lakes, and oceans covering most of the earth’s

surface. The second is the ground water, which is the

subsurface water that occurs beneath a water table in soils

or rocks, or in geological formations that are fully saturated.

Sources of contamination

Contamination of ground water occurs when polluting

substances leach into a water-saturated region. There are

two sources of contamination, point and non-point sources.

Contamination of rivers and lakes occurs from individual and

industrial disposal systems. Contamination from agriculture

includes erosion of, topsoil, pesticides and fertilizers. Many

potential contaminants are removed by filtration and

absorption as the water moves slowly through the layers of

rock and soil, but toxic organic chemicals may not be filtered

out during migration. Forestry if not carefully done can

contribute to soil erosion and, by removing shade cover,

could have a large impact on the temperature of normally

shaded streams. In India more than 90% of urban sewage is

discharged into surface water without treatment.

The two primary sources of ocean pollution are oil spills and

ocean dumping. Since a great deal of oil is transported over

the oceans and is produced from platforms exploiting fields

under the oceans, oil spills have become a more common

occurrence.
 WHAT CAN WE DO?

There are many books that list the actions that a person can

take to protect the environment. Yet many of these seem to

be such trivial minor actions: turning off taps and lights,

recycling paper, composting organic waste, and sharing a

car to work. These changes are indeed small but if

everybody adopts them, the overall effects could be

significant and there is indeed truth in this. If they were

major actions involving a large sacrifice, people would be

reluctant to take them and so there may be little point in

including them in the suggestions made.

Efforts to recycle paper, aluminum and plastics have

expanded greatly in recent years. Individuals, private groups

and local authorities go to considerable lengths to collect

and sort household rubbish. But even once it has been

collected and sorted, it is not necessarily put to good use, as

there is not always market for the recyclable material.

Regulations introduced in Germany have caused a massive

expansion of the volume of material put into the recycling

stream, and as a consequence prices have been forced down

to the point where in some instances it has become

practically valueless.

The opportunities for recycling are constrained by the,

markets for recycled products. These opportunities depend

on the prices of recycled products vis-à-vis prices of

products made from virgin material, and also investment in

processing plant, and government regulation regarding use

of recycling materials.

Similarly, the scope for energy conservation is determined in

large part by the way, in which buildings are constructed.

The possibility of reducing car travel depends on the location

of settlements and services and the availability of public

transport.

Individual decisions have to be made within the framework

established by these sorts of considerations. These factors

are not easily altered through individual actions and depend

largely on the underlying structure of the society and its

rules.
It is primarily at this level that the environmental problems

have to be tackled. Political and social change is a part of

this and as such has to be incorporated into our society to

introduce policies that create conditions where more weight

will be given to environmental considerations in economic

activities.
 BIBLIOGRAPHY

1. ENVIRONMENTAL AND NATURAL RESOURCE ECONOMICS

-Tom Tietenberg

2. NATURAL RESOURCE ECONOMICS

Theory and Application In India

- John M. Kerr

- Dinesh K. Marothia

- Kater Singh

- C. Ramaswamy

- William R. Bentley

3. ENVIRONMENTAL ECONOMICS

In Theory And Practice

- Nick Hanley

- Jason F. Shogren

- Ben White

4. ENVIRONMENTAL ECONOMICS