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Environmental Policy Choices in Developing Economies
Lecture 22
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The Environment and Development
• Solving the economic development problem is part of addressing local and global environmental concerns
• Sustainability cannot be achieved unless poverty is directly addressed. What are the links?
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1. Many environmental problems are problems of poverty
• Unsafe drinking water• Inadequate sewage facilities• Indoor air pollution
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Safe Water and Sanitation by Income
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2. Conserving Resources
• Poor people often put an unsustainable burden on the natural capital in their immediate environment
• Higher consumption in rich countries has a substantially larger global impact
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3. “Demand” for Pollution Control
• Richer people “demand” more pollution control
• Environmental Kuznets Curve (EKC) Hypothesis– As economic growth proceeds, certain types of
pollution problems first get worse and then get better
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Regulated and Unregulated Pollutants by Income
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Explanations for the EKC
• Rising Education• Political demand for pollution control• Shift in industrial composition• Relative risk considerations: is
environmental quality a “luxury good”?
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4. Population Growth
• Population growth slows with increased income
• As societies grow wealthier, families almost universally have fewer children
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World Population, 1900-2100
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Consumption and the Global Environment
• Consumption-pollution link1. Rich country consumption responsible for 2/3
of global pollution2. High consumption in rich countries is
responsible for environmental degradation in poor countries
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Natural Capital and Development
• Demand for resources in rich countries has depleted the natural capital stock in poor countries, WITHOUT investment of resource rents:– Colonial governments– Falling relative prices for primary resources– Low taxes on resource based industries– Spending on military and imported consumption goods
for elites– Debt repayment
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Debt• Latin American external debt
– 1960: $7.2 billion– 1982: $315.3 billion
• Costa Rica’s debt: $960 per capita, more than 1/3 the average yearly income
• Profits from cattle ranching go towards paying off this debt… Advantages for Sustainable Development
• Relatively effective governmental bureaucracy• Few military expenses• Commitment to education, especially of women• Advanced welfare system
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Global Debt Relief
• Watch the movie!http://www.live8live.com
• 2005 G* Summit: Debt forgiveness for 18 poor countries, subject to “conditionality”
• Still only 1/6 of global debt of low incomc countries
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Envisioning a Sustainable Future
• Bruntland Commission Report (Our Common Future)– “Sustainable development” gains widespread
currency– Brighter future will not come without hard and
conscious work– Four key sustainability steps
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Sustainability Steps
• Population and human resources
• Food security
• Improved technology
• Resource conservation
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Guns vs Sustainable Butter
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Benefit-Cost Analysis• Environmental Damage:– Impact on human health– Soil fertility– Resource depletion– Costs of environmental deterioration not assessed
properly
• Measuring Benefits/Costs of environmental program– WTP: Underestimate the true value– Discounting
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Altering Current Policies
• Economic growth and negative environmental impact
• Examples:– Subsidizing pesticides– Flood insurance– Lower incentive to conserve timber
stocks
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Institutional Policy: Property Rights
• Economic development includes modern economic institutions
• Text discusses the resource depletion in Ethiopia
• Why rising market price of fuel wood deforestation?
• Open access resources: No owner!• Socially desirable to conserve a particular
resource
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Cont’d• Individual or small-group property rights
• Private land owners can’t defend the boundaries
• Institutions to settle land-use conflicts
• Avoid ill-defined rights and open-access externalities
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Population Policy as Environmental Policy
• Total environmental impact:– Environmental impact per person * Number of people
• Policies leading to lower population growth rate (in developing economies) not necessarily lead to lower environmental impact!
• Population policies are no substitute for environmental policies on their own
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Command-and-Control or Market Incentives?
• CAC Strategies: Direct and simple with uniform standards
• Easy monitoring• Decentralized policies: developed
world that has more sophisticated implementation and enforcement machinery
• Spectrum of developing countries
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The Role of Developed Countries
• Technology transfer:– Of technology, knowledge and skills that can
provide the impetus for economic development– International environmental treaties: Montreal
Protocol– Develop new technologies and procedures– Transfer those ideas “effectively”
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• Debt-For-Nature Swaps– Buy debts in exchange for environmental
conservation– Might be effective as an environmental tool but
not as effective as debt-reduction tool– Enforcement
• Environmental values in international aid institutions
The Role of Developed Countries