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General Environmental Pollution and the KyotoProtocol.

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General Environmental Pollution and the Kyoto Protocol What is environmental pollution? It can be defined as the act of environmental contamination, usually caused by man-made wastes. The Environment and Opportunity Cost At first thought, these two concepts seem to be fairly unrelated. However, both of these concepts come down to one single principle - Scarcity. As economists, we have seen that society tries to make the best arrangements between various resources in order to gain maximum benefit. Unfortunately, these arrangements which provide maximum benefit to an individual or firm can have detrimental side effects to other individuals and/or firms. Environmental problems would not arise if there was a superabundance of resources. There would be no worries about running out of supplies. Most waste products could be easily and harmlessly dispersed if there were boundless oceans and atmosphere. Many of our environmental problems occur simply because we have tended to treat world resources as if they were limitless. Scarcity forces upon us the necessity of making choices by comparing alternatives. We are all aware that if limited resources are fully employed, an increase in the output of one commodity or service can only be achieved by having less of another - more resources being used to clean-up the environment will mean fewer resources available for consumer goods. ...read more.


If such an increase in costs comes from a more vital product, say oil, it can cause cost-push inflation in the economy. We shall now take a real-life example of the French oil industry and a French oil company called TotalFinaElf. TFE has consistently been leading the list for the worst French polluters, followed by other French oil firms. The French government, a couple of years ago decided to implement more stringent policies in order to reduce pollution and environmental damage. The policies that were implemented have been discussed below. 1. The first policy implemented was a flat rate tax. The tax leads to an increase in the cost of production, a reduction in production and hence a reduction in pollution. The social optimum point of production is at OQ, where the firm pays tax equal to EQ. This is equal to its marginal profit in pollution and hence there is no profit on the last unit. However, the French government soon realised that such a policy was not very effective for a number of reasons. It placed the same amount of tax on producers regardless of their size and regardless how much they individually polluted the atmosphere. It was very difficult to place a monetary value on the extent of the damage and hence the tax rate. ...read more.


The Kyoto Protocol uses a system of pollution permits which can be traded on an international market. The USA is opposed to this treaty, because it claims that it will have a devastating effect on its economy. It claims that it will lead to serious job losses, inflation and a fall in GDP. How - We have seen that pollution occurs because of overproduction and over consumption. Reducing production will lead to more factors of production becoming unemployed, and also a fall in GDP. This has brought various criticisms, especially from the UK. All nations claim that the USA, by a large margin, is the world's largest polluter and hence should sign the treaty for the well-being of future generations. "The US contains 4% of the world's population but produces about 25% of all carbon dioxide emissions. By comparison, Britain emits 3% - about the same as India which has 15 times as many people" Source: BBC President Bush "Under the Protocol, the U.S. is supposed to cut its greenhouse gas emissions by seven percent. With four percent of the world's population, the country accounts for about 25 percent of the Earth's greenhouse gas emissions" European Environment Commissioner Margot Wallstr´┐Żm says 'But this ignorant, short sighted and selfish politician, long since firmly jammed into the pockets of the oil lobby, clearly couldn't care less. The talks in Bonn in July must now concentrate on world action independent of the U.S.' " ...read more.

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