2.2.1 Environmental economics
Environmental economics emerged as a sub-discipline in the 1960s, following a tradition that began in the early twentieth century with ‘agricultural’ economics and continued in the 1950s with ‘resource’ economics. In each case, natural resources are treated as environmental assets in the same way as other resource inputs, using the classical mainstream supply and demand economic models. David Pearce, who at one stage was at the forefront of environmental economics and was an active environmental policy advisor in the UK during the late 1980s and early 1990s, holds the optimistic view that economic tools can be adjusted to accommodate intrinsic value. Environmental economics seeks to extend the moral community by providing wider guidance on valuing non-human nature as morally considerable entities.
The challenge for the environmental economist has been to try to internalise environmental costs. Costs are usually determined by the trading price of an asset within the market. However, many environmental assets are market ‘externalities’ (non-tradable factors that are therefore not normally valued in economic terms), which means they cannot easily be costed or quantified according to utilitarian principles (that is, principles that reflect only the ‘direct-use’ value of an asset). These are assets that do not have a direct market-price value since they are not, in the traditional sense of the term, market commodities. Examples include clean air, and various types of inaccessible ecosystem including wild forests and oceans. Box 7 summarises some of the ways in which monetary value is assigned to nature.
Box 7 Putting a monetary value on nature
‘External cost estimates’ (ECEs) is the umbrella term used to refer to methods that are designed to assign monetary value to externalities. One ECE method increasingly used as part of a broader economic valuation is ‘contingent valuation’. Two examples of tools that are used to perform such a valuation are the ‘willingness to pay’ (WTP) principle and its reverse, the ‘willingness to accept compensation’ (WTA) principle. These tools ask people to imagine scenarios in which they might have to either pay for a resource, as with WTP (e.g. access to an area designated as a national park), or accept compensation for an environmental loss, as with WTA (e.g. the loss of a recreational area marked for industrial development).
An example of the use of such contingent valuation methods is the debt-fornature principle pioneered by the World Bank alongside environmental agencies such as WWF (World Wide Fund for Nature) and CI (Conservation International). The idea is that independent organisations such as WWF and CI pay off some of the debt of less developed countries in return for being allowed to encourage, for example, rainforest preservation in the host debtor nation.
Similar ideas inform certain constituents of the 1997 Kyoto Protocol. Global greenhouse gas emissions from industrialised countries are traded against assistance towards projects in developing countries that contribute to sustainable development. Such schemes allow pollution to continue in industrialised countries as long as some form of environmental recompense is offered to less developed countries. The 2006 Stern Review on climate change gave further impetus to the need for emissions trading in carbon. Placing a price on a tonne of carbon (approximately thirty Euros in 2008) provides companies with two options: either they can make cuts in carbon emissions themselves, or they can fund reduction of others’ emissions by purchasing allowances. This has triggered numerous concerns, not least that it effectively allows those with money to buy their way out of responsibility.
Activity 8 Carbon trading
Use an online search engine to explore (a) the number of companies that manage carbon exchanges, and (b) the arguments for and against carbon trading. You are advised to spend no longer than 30 minutes on this activity.
Economic valuation of environmental factors does offer some counter to the purely instrumental value associated with the open market. In particular, it provides an opportunity to broaden the values that inform decisions relating to the environment. Contingent valuation enables some representation of values associated with future generations, or traditionally marginalised groups such as the poor. It also attempts to represent the more ecocentric values associated with environmental activists. Box 8 lists seven general uses of economic valuation (including contingent valuation).
Box 8 The uses of economic valuation
Pearce and Seccombe-Hett (2000) list the following seven general uses of economic valuation:
To provide environmental assessments as part of cost–benefit analyses for development projects. This was the original use of economic valuation.
To provide environmental assessments as part of cost–benefit analyses for policy making (for instance, US and European directives require that environmental assessments should be carried out on all national policies that might have an environmental impact).
Pricing policy (e.g. for access to national parks).
Design of environmental taxes.
National accounting: environmental assets and costs are increasingly included in national accounts such as GNP (gross national product) – for example, use of a natural forest for timber might contribute to GNP but would also involve an environmental cost (loss of a natural resource).
As a management tool for valuing broad-based assets as an input to strategic and operational planning.
As a participatory exercise (necessary for drawing up public preference profiles underlying ‘willingness to pay’ estimates). Public participation provides some guarantee that proposals will be accepted by those most likely to be affected.
Activity 9 Guidelines for improving accountability?
From the list in Box 8, note down which use of economic valuation you consider to be (a) the most effective and (b) the least effective in fostering a greater level of accountability for any environmental harm.
As demonstrated by the discussion above, the field of environmental economics contributes to policy design at a collective level. However, it also has an effect on consumer behaviour at a more individual level. Box 9 traces the change in emphasis from producer responsibility to consumer responsibility in the global North.
Box 9 Producer or consumer responsibility?
For the past two centuries, and particularly during the last thirty years, solving environmental problems has been construed as a producer responsibility and consumers have been placed at a distance from the assignment of culpability. Such an allocation of blame has given rise to familiar forms of regulation in the world’s wealthiest countries aimed at modifying production techniques and technologies. For instance, policymakers have typically viewed acid deposition in productionist terms, an interpretation that has resulted in legislation requiring operators of large combustion plants to install flue-gas desulphurisation equipment designed to cleanse emission streams. Also present, but much less prominent in this respect, have been proposals to shift electricity production away from coal toward less environmentally damaging fuel sources such as natural gas, wind and solar. Pollution problems generally have been targets for a variety of technofix solutions aimed at modifying the means of production. Even the design of more energy-efficient household appliances represents an obligation that has been placed squarely on the shoulders of producers. There has been little serious thought or effort devoted to regulating consumption itself in order to address environmental problems.
[O]ver the past four or five decades consumers in the richest nations have largely avoided being identified as responsible for the environmentally damaging effects of their consumption practices in part because other targets and explanations have been offered. This distancing has been encouraged by elected officials in the richest countries who have been reluctant to question consumer decision making, aspirations and sovereignty. This approach has been reinforced recently by the neo-liberal orthodoxy, which asserts that any political interference with consumer autonomy violates rights, and, more practically, is a recipe for economic and electoral disaster. One of the most notable effects of the 1992 Earth Summit has been to begin to call this interpretation into question and to initiate a process in which consumption is now coming to be viewed as a legitimate domain for environmental policymaking.
(Source: Murphy and Cohen, 2001, pp. 4–5)
Murphy and Cohen go on to state that a ‘standard assumption about markets is that to work efficiently prices must be correct and information must be readily available’ (p. 9). They identify the prevalence of measures aimed at ‘internalising the cost of environmental damage’ by way of eco-taxation, and ‘dealing with the “information deficit”’ by way of eco-labelling. These measures are all part of the drive towards green consumerism.