Environmental Problems, Their Causes, and Sustainability 1

■ Estimate short- and long-term benefits and costsfor all affected population groups.■ Compare the costs and benefits of alternativecourses of action.■ Summarize the range of estimated costs andbenefits.Various economists make use of tools such as optimumlevels and CBA in different ways. The neoclassicalapproach would tend to value resources strictly accordingto market information. They would look at thegoing prices for timber or coal, for example, or estimatethe amount of money that tourists are likely tospend visiting a lake after it is cleaned up. They wouldcalculate marginal costs and benefits of developing aresource or of cleaning up pollution somewhere, andthen determine optimum levels of resource use or pollutioncontrol.Environmental and ecological economists wouldtend to be less bound by market prices. They might assignhigher-than-market values to resources to accountfor their importance to ecosystem health, biodiversity,and future generations. They would thus determinehigher optimum levels of pollution control and loweroptimum levels of resource use than would some neoclassicaleconomists.Have environmental regulations in the UnitedStates been worth the cost to industry, business, andconsumers? There are different opinions on this issuedepending on how CBA analyses are made. However,a 2003 joint study by the White House and the Office ofManagement and Budget (OMB) estimated that the totalannual benefits from EPA regulations between 1992and 2002 ranged from $121–193 billion compared toannual costs of $23.3–26.6 billion. Thus according tothis CBA, the economic benefits of such regulationshave exceeded their costs by a factor of 4.5 to 8.26-3 MONITORING ENVIRONMENTALPROGRESSHow Can We Evaluate EnvironmentalQuality and Human Well-Being? Developand Use New IndicatorsWe need new indicators to accurately reflectchanging levels of environmental quality andhuman health.Economists and environmental scientists want measurementsthat can indicate what is happening in aneconomy and in nature’s economy. Gross domestic product(GDP), and per capita GDP indicators provide astandardized and useful method for measuring andcomparing the economic outputs of nations.Economists who developed the GDP manydecades ago never intended it to be used for measuringenvironmental quality or human well-being. Butmost governments and business leaders incorrectlyuse this narrowly defined indicator that way. The GDPis deliberately designed to measure the annual economicvalue of all goods and services produced withina country without attempting to make any distinctionbetween goods and services that are environmentallyor socially beneficial and those that are harmful.Environmental and ecological economists and environmentalscientists call for the development of newindicators to help monitor environmental quality andhuman well-being. One approach is to develop indicatorsthat add to the GDP things not counted in themarketplace that enhance environmental quality andhuman well-being. They would also subtract from theGDP the costs of things that lead to a lower quality oflife and depletion of natural resources.One such indicator is the genuine progress indicator(GPI), introduced in 1995 by Redefining Progress, anonprofit organization that develops economics andpolicy tools to help evaluate and promote sustainability.(This group also developed the concept of ecologicalfootprints, Figure 1-7, p. 10 and Figure 9-12, p. 172).Within the GPI, the estimated value of beneficial transactionsthat meet basic needs, but in which no moneychanges hands, are added to the GDP. Examples areunpaid volunteer work, healthcare for family members,childcare, and housework. Then the estimatedharmful environmental costs (such as pollution and resourcedepletion and degradation) and social costs(such as crime) are subtracted from the GDP.Genuine benefits not harmfulprogress GDP included in environmentalindicator market transactions and social costsFigure 26-8 compares the per capita GDP and GPIfor the United States between 1950 and 2000. Note thatwhile the per capita GDP rose sharply, the per capitaGPI stayed nearly flat and declined slightly between1975 and 2000.A similar indicator is the Index of SustainableEconomic Welfare (ISEP) developed by ecological economistsHerman Daly and John Cobb. It combines estimatesof income, natural resource depletion, environmentaldegradation, economic benefits from volunteerwork, and distribution of income for different countries.The United Nations has developed an indicator ofhuman well-being based on measurements of a country’sstandard of living, education, and life expectancy.Others call for a much more detailed indicatorbased on carrying out materials balance measurements.Itinvolves, for any good or service, measuring necessaryinputs of matter and energy resources from the envi-590 CHAPTER 26 Economics, Environment, and Sustainability