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Environmental Economics HSC Notes

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Environment: is the totality of physical conditions in which human society lives, including the climate, soils, and plant and animal life. Environmental Management: refers to actions to protect and enhance the natural environment, including protecting the quality of air, water and soil, preserving natural environments and biodiversity, ensuring the sustainable use of renewable and non-renewable resources. Market Failure: occurs when the price mechanism takes account of private benefits and costs of production to the consumers and producers, but fails to take into account indirect costs such as damage to the environment. Tragedy of the Commons: refers to a situation where the failure of the market to assign costs to individuals leads to an overuse of resources such as the natural environment, which have no single owner. Free Rider: refers to groups or individuals who benefit from a good or service without contributing to the cost of supplying the good or service. As a consequence, the good or service is likely to be under-supplied in relation to the total demand. Public Sector Goods: are goods and services provided by the government such as train services and hospitals. The Kyoto Protocol: an agreement by 186 nations since 1997 designed to lower emissions of carbon dioxide and other greenhouse gases in order to combat global warming. Negative Externality: an unintended negative outcome of an economic activity whose value is not reflected in the operation of the price mechanism. Positive Externality: an unintended positive outcome of an economic activity whose value is not reflected in the operation of the price mechanism. Ecologically sustainable development * Environmental economics ? emphasises the need to achieve sustainable level of growth and to take into account of the effect that economic activity has on the environment * Environmental economists: o If hidden costs of economic growth are ignores. Then fast growth ? rapid depletion of resources, polluted atmosphere ? decrease quality of life o Economic growth should be considered by taking longer term perspectives ? ...read more.


E.g. the consumption of a public good by one person does not reduce the ability of others to also enjoy this public good. * FREE RIDERS: refers to the groups or individuals who benefit from good or service without contributing to the cost of supplying the good or service. As a consequence, the good or service is likely to be under-supplied in relation to the total demanded. For this reason public goods tend to be provided by the government. * Public sector foods are goods and services provided by the government such as train services and hospitals. Major Environmental Issues Preserving Natural Environments * Environmental damage affects human health ? higher levels of air and water pollution, restricts availability of resources. * Preservation of the environmental may include measures such as: o Restrictions on development in environmentally sensitive area, such as mining in national parks o Controls over emissions of water products o Requiring new plantation in areas where logging has occurs o Actively protecting the natural environment from threats such as non-native plants and animals. * Australia protects about 10% of its total land area. Australia has POOR record of preserving biodiversity despite being one of the six most biodiverse nations in the world. In the last 200 years 27 mammals have become extinct, athirst of the global total. World Development Indicators 2009 ? Australia has 623 animals and plants as threatened with extinction. * Governments face problems in preserving the natural environment: o Intervention by the government ?reduction in economic growth in the short term ? cause higher prices or reduced supply. Such changes are often unpopular. E.g. agricultural procurers reject reductions in water allocation o Industries will face higher costs ? if firms have to comply with rigorous environmental standards. Environmental standards ? may make us less competitive as a place ? o Australia may miss out on opportunity that would life economic growth and exports. ...read more.


o The government has introduced a 'cap and trade' emission trading scheme by mid 2011. Firms must hold enough permits to cover the amount of emissions they release. This puts a price on the emissions and provides incentives for firms to develop new technologies and processes to reduce emissions of greenhouse gases. o The emissions trading scheme (ETS) will have significant consequences on the economy. Between 2010 to 2050, Australia 's real GDP/capita will grow at 1.1% per annual (rather than 1.2% without the scheme) o But the ETS will also affect businesses, individuals and the government. Individuals ? rise in costs of living ? CPI of 1-1.5%. governments will compensate pensioners and low and middle income earners o Problem of ETS: reduce competitiveness of Australia's economy and lead to carbon leakage. Carbon Leakage is the shift in production of emissions-intensive products to countries with no carbon emissions targets but not reduce emissions into the atmosphere. o Other policies to encourage development of new technologies ? 2009/10 budget ? $4.5 billion Clean Energy Initiative. And the government has set a target of producing 20% of electricity from renewable energy sources by 2020. * ENVIRONMENTAL REGULATION: a government would establish regulatory limits and firms found to be in breach of these limits would be penalised. This "polluter pay" approach is designed to ensure that those who contribute to the environmental damage bear the costs of reducing much damage. * GOVERNMENT OWNERSHIP AND MANAGEMENT: where an environmental resources provides public goods or is an open access on common property resources, governments might step in to either provide the good or to take over the, management of the resource e.g. Department of National Parks and wildlife. * Government's can also encourage firms and individuals to use more ENVIRONMENTALLY FRIENDLY GOODS AND SERVICES. E.g. state government's ? subsidies public transport to provide an alternative to motor vehicles. Government funding is also used to accelerate the introduction of new technologies e.g. 2009/10 Federal Budget ? Home insulation project to 2.2 million homes (failed because of deaths/fires) ?? ?? ?? ?? Environmental Economics Basil Razi 1 ...read more.

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