Appunti di Environmental management and sustainability

R R[+] R[-] J J[+] J[-]

Social welfare rises as each individual gets happier.

The most used SW function is the sum of individual utilities:

SW = U (X , P ) + U (X , P ) + …

R R[+] R[-] J J[+] J[-]

Unlike classical utilitarians, modern economists do not rely on direct measurement of

utility.

However, to determine the "correct" level of pollution from a social welfare perspective,

we need to weigh one person's consumption against another's.

Moreover, the social welfare function assumes that pollution victims have no special

rights, e.g. if Rachel lives downwind from John's steel factory and, as a result, suffers

health damages of $25 per day, this reduction in social welfare would be strictly balanced

by a gain in John's profit of $25.

Equation is thus "blind" to the distribution of the costs and benefits of economic events

within the current generation, across generations, and between pollution victims and

beneficiaries.

All that matters for improving social welfare is increasing net consumption of both market

and non market goods, regardless of who wins and who loses.

Let’s see the three social welfare functions:

Efficiency standard

Equation is in fact an "adding up" mechanism underlying an efficiency standard for

pollution control.

Pay attention to the following line

★

Under an efficiency standard, the idea is to maximise the net benefits (benefits minus

costs) of economic growth, by carefully weighing the benefit (more consumption) against

the costs (pollution and resource degradation).

Put in simple terms, lower prices of consumer goods for the vast majority must be strictly

balanced against the protection of environmental quality and health.

The efficiency standard for pollution control is often modified to include "fairness

weights" in the social welfare function. For example by taking into account that 1€

increases poor people's happiness more than it increases rich people's happiness.

Which are the potential problems with efficiency?

★

1) No compensation for fairness in the distribution of income for this generation;

2) No special protection for the well-being of future generations;

3) No rights for pollution victims;

The problem with efficiency is to determine the "correct" level of pollution from a social

standpoint, we need to weigh one person's consumption against another's.

This is implicit behind the efficiency standard.

Example: Strawberries

Suppose pesticide use on strawberries causes human sickness that costs members of

society $100 million per year.

Pesticide use also lowers strawberry prices to consumers by $150 million per year.

In this case, the Net Benefits of pesticide use (benefits minus costs) are $50 million.

Since the net benefits are positive, banning the pesticide would be inefficient.

For simplicity, assume no other benefits or costs; proponents of an efficiency standard

argue that, over time, most people will benefit if the net economic benefits from pollution

control are maximised. Lower prices of consumer goods for the majority must be

balanced against protection of environmental quality and health.

The problem is to determine the "correct" level of pollution from a social standpoint: we

need to weigh one person's consumption against another's (but it is difficult to establish

this.

The assumption of equal marginal utility of consumption says that additions to

consumption are valued equally by all individuals.

This is implicit behind the efficiency standard.

Efficiency does not equal fairness:

- No special protection for low income people;

- No special protection for the well-being of future generations (no concern for

intergenerational fairness);

- No special protection for pollution victims (no differentiation between rights of

polluters and victims).

Where is the trap? “Rights of polluters”, the ones who pollute; there should be protection

for pollution victims.

Sustainability Standard

It is designed to protect the welfare of future generations.

Social welfare does not rise if increases in consumption today come at the expense of the

welfare of our children; to account for this, in our social welfare function, we would use a

fairness weight to ensure fairness to future generations.

Suppose Rachel is a person not yet born and that John is a person alive today.

Using a sustainability rule, we can write our social welfare function as:

SW = w*U (X , P ) + U (X , P )

R R R J J J

where w is a weighting number big enough to ensure that increases in John's

consumption do not substantially penalise Rachel (not yet born).

So increases in individual happiness today cannot come at the expense of future

generations.

Which is the problem with this equation? To measure John’s consumption and subtract

from it the pollution produced by the goods consumed by John; there are differences in

consumption among people.

Safety Standard

Proponents of a safety standard argue that people have a right to protection from

unwanted damage to their health.

To account for this in our social welfare function, we would use a fairness weight on

pollution.

The safety standard connected with the social welfare function.

★

Suppose Rachel lives downwind from John's steel factory and, as a result, she is exposed

to air pollution, P .

R

Using a safety standard, we can write our social welfare function as:

SW = U (X , w*P ) + U (X ) + …

R R R J J

Rachel has a right to protection, then the negative effect of pollution will be weighed very

heavily; this index enhances the negative effect of pollution on Rachel.

Then the SW rises less with the steel production than it does with less polluting goods.

Which Standard is Correct? There is no "correct" social welfare function.

★

Their use helps to clarify the assumptions in normative debates over the right level of

pollution. Environmental policies are the result of discussions among European countries

in the light of the different opinions of each country on environmental questions. There

are 2 kinds of policy coherence: vertical - between institutions - and horizontal - laws of

the same institutional level. We aim to create a system with no contradiction among laws.

By examining the ethical foundations of different views about pollution levels, we can

develop a better understanding of why people disagree about environmental protection

targets.

Conclusion

The increase in material consumption of both market and nonmarket goods, (including

clean air and water), increases individual utility.

The individual utility is equal to individual satisfaction, and utilitarianism is the

maximisation of the social utility (i.e. social welfare).

Normative questions ask what should be rather than what is.

The ethical foundation of economics is utilitarianism, a philosophy in which

environmental cleanup is important only for the happiness (utility) that it brings to people

alive today and in future.

This philosophy is contrasted with a biocentric view, which values nature for its own sake.

Economists assume that consumption of both market goods and non market goods makes

people happy.

This relationship can be expressed in a utility function, in which pollution enters as a

negative consumption element.

The utility function assumes a fundamental trade-off between growth in consumption and

improvements in environmental quality.

Criticism: What is environmental quality? It is connected with components of the

environment (air, water, soil, wind, fauna and flora …); How can you establish the goodness

of it? What is the baseline?

Economists often make one further key assumption about the consumption-utility

relationship: more is better.

To add up individual utility, economists use a social welfare function.

In such a function the social welfare is just the sum of individual happiness, regardless of

the distribution of benefit within a generation, across generations, or between victims and

polluters.

This Social Welfare function underlies the efficiency standard, which seeks to maximise

the net benefit from steps taken to protect the environment.

Alternatively, is it possible to weight the consumption of poor people more heavily than

rich people or the victims more heavily than polluters (safety standard), or adopt a

sustainability rule ensuring that consumption today does not come at the expense of

future generations.

No social welfare function is "correct" but their use helps clarify underlying assumptions

in normative debates over the 'right' level of pollution.

Pollution and resource degradation as externalities

The economy depends on the ecological system in which it is embedded in two

fundamental ways.

Raw materials, Sources Economy Waste products and sinks

⇒ ⇒

Sinks are landfills where waste is conducted.

Is this process sustainable? No, because it causes the contamination of waters; the

problem is the insufficient biodiversity; in the case of the pulp mills there is no

biodiversity, there is only the eucalyptus, the process produces profit immediately but

doesn’t respect sustainability.

Both sources and sinks are called natural capital by economists; it is the input that nature

provides for our production and consumption processes.

Pollution is the overuse of sinks; resource degradation is the overharvesting of sources,

thus, pollution and resource degradation are flip sides of the same process, the excessive

exploitation of natural capital.

This is why pollution can be defined as a negative externality, because it imposes costs on

people who are “external” to the producer and consumer of the polluting product.

Increased risk of cancer is clearly a by-product of human activity.

→

From the point of view of the economy, the market system generates pollution because

many natural inputs into the production of goods and services, such as air and water are

underpriced.

Industries use tonnes of these resources for free (water or air) because no one owns these

resources, in the absence of government regulation or legal protection for pollution

victims, industries will use them up freely, neglecting the external costs imposed on

others.

Negative Externalities

Economists define "pollution" as a negative externality: a cost of a transaction not born by

the buyer or seller.

We do not have only negative externalities but there are also positive externalities.

Examples of Pollution:

- Tyler is eating in a smoky restaurant. Is he exposed to pollution? Yes.

If Tyler is the one smoking and he is aware of the damage it causes, then he is

balancing pleasure against risk and is not being exposed to pollution (according to

neoclassicals teacher disagrees).

→

- Karen routinely comes in contact with low-level radioactive waste while working at

a nuclear power plant. Is she ex