Root causes of environmental problems

how to understand sustainability in fashion?

combining value chain analysis and systems thinking.

what are the advantages/strengths of the value chain approach?

• impact, incentives, solutions at each stage

• combines multiple methods and disciplines

what is economics and its 2 main features?

• the study of how people make choices under conditions of scarcity, and of the consequences of those choices for society.

• 2 features

  • choices: the incentives and trade-offs affect the decisions we make

  • consequences: every decision creates impacts, such as costs, benefits, winners, and losers.

(economics makes those transparent)

in society, who are the decisions made by?

• individuals living in households that make consumption and saving decisions every day.

• firms that produce goods and services and invest in capital.

• governments, that '“set the stage” for the interaction between individuals and firms

about individual/households decisions

• make decisions faced with a budgetary constraint

• maximize their happiness from consumption (of marketed and non-marketed goods)

• trade-offs are inevitable

• happiness may depend on many individual and social factors

about firms decisions

• make production decisions based on information from markets

• they maximise their profits from production

• by deciding what and how much to produce

• and by choosing a combination of inputs

• profit maximization may involve different strategies that all have different environmental impacts

about government decisions

• gov face decisions, especially when markets fail

• provision of public goods

• correcting wrong price signals (should we tax CO2 emissions?

• leveling the playing field (regulation and non-competitive markets)

What are the root causes of environmental problems?

• env problems are ultimately caused by human decisions

• those decision take place in a certain institutional environment (rules, regulations, incentives…)

• those decisions make perfect sence for the individual

• but bad for society as a whole

• solution: address shortcomings of institutional environment

what is the power of markets?

• markets send signals about value

• allocate resources and goods in the most efficient way (though this can be perceived as unfair)

• markets create value

• but markets often fail, creating losses to society

what are the differences between public and private goods?

what is an externality?

• occurs when a person or firm does not bear all the costs or receive all the benefits of his or her actions.

• it is the unintended side-effect of our consumption and/or production decisions

• the presence of an externality creates a gap between the private costs and the true cost of a given action.

  • for e.g. the price we pay for a t-shirt reflects the cost to the producer, it is not the true cost to society as a whole.

what are examples of negative and positive externalities?

-ve externalities (costs)

• pollution emitted by a factory that pollutes waterbodies nearby

+ve externalities (benefits)

• benefit for a consumer or firm

• pollination from bees for an apple farmer

what is flow and stock pollution?

• flow pollution - short life pollutants

  • if the residuals have short lifespans before being broken down into harmless forms

• stock pollution - long lifespan pollutants

  • have to worry about their accumulation in the environment

  • the stock of pollution refers tot he accumulation of a particular pollutant in a given space and time

what does the stock of a given pollutant and its damage depend on?

• the stock of a given pollutant depends on

  • the flow of new emissions

  • the decay of the pollutant itself

• damages depend on

  • the stock (the concentration) of the pollutants

    • mercury or heavy metals in aquifiers: toxicity for water users

    • ghg emissions (CO2, CH4, N2O) in atmosphere: climate change

    • plastics

    • acidifying substances (SO2, NOX, NH3) in soil: acidification

what are ten key insights from economics?

1. economic and environmental systems are determined simultaneously.

2. the behavioural underpinnings of economics matter for environmental policy

3. environmental resources are scarce, and using them in one way has an opportunity cost.

4. the free market system can generate the ‘wrong’ level of environmental quality

5. markets have proved to be the best way of allocating a vast range of resources

6. government intervention does not always make things better, and can make things worse

7. environmental protection costs money

8. when managing renewable resources such as fish and forests, choosing maximum sustainable yield at the best level at which to harvest is rarely optimal.

9. whilst economic growth may contribute to current environmental problems, few people would swap their position today with their equivalent 200 years ago

10. many of the world’s most serious environmental problems are global in nature

what are the differences between private vs. social costs?

• private costs

  • costs that accrue to the producer

  • e.g. labor, machinery, raw materials

• external costs

  • costs imposed on others

  • e.g. CO2, water and soil pollution

• social costs

  • all costs, that is, private costs and external costs

zero pollution is rarely optimal for society. Instead, what is?

instead, policy aims to find a balance where the marginal cost of abatement equals the marginal environmental damage

what is the trade off?

environmental quality is beneficial, but reducing emissions (abatement) is costly

what is optimal pollutions?

the point where the cost of an additional unit of pollution equals the cost of abating that unit

what are the 3 policy instruments?

• command & control: standards, bans, and direct regulations

• economic incentives: market-based approaches like taxes (e.g. carbon tax) or tradeable permits (e.g., EU ETS) to internalize external costs

• institutional approaches: information, nudging and social norms

graph for total environmental damages

• usually convex

graph for marginal environmental damages

• function: gives the damages of one additional unit of emissions for a certain level of environmental quality

• when environmental degradation is high, further reductions carry a high damage

graph for marginal abatement costs

• function: gives the cost of reducing one unit of emissions (abatement) at a certain level of environmental quality

• when environmental degradation is high, costs of reducing pollution are very low

graph for optimal pollution